The UK government has cut the rate of VAT applied to hotels and tourism-related activities from 20% to 5%.
The move, which will last from 15 July until 12 January 2021, comes after years of campaigning on the part of the sector for the reduction and was described by chancellor Rishi Sunak as a “£4bn catalyst”.
The chancellor also announced the Eat Out to Help Out discount scheme, which will provide a 50% reduction for sit-down meals in cafes, restaurants and pubs across the UK from Monday to Wednesday throughout August, up to a maximum of £10 per head on a bill, including food and non-alcoholic drinks, but excluding alcoholic drinks.
Sunak said that the VAT cut would “save households around £160 per year on average and, together with the Eat Out to Help Out Scheme, will support over 2.4 million staff at over 150,000 businesses, helping them recover and reopen after the Covid-19 lockdown. This will give these businesses the confidence to maintain their staff, as more people get through the door and business activity kick-starts again.”
Jane Pendlebury, HOSPA CEO, told us: “I am shocked that I got such an adrenaline rush from a budget! The VAT reduction is absolutely massive news for hospitality and something that UKHospitality and the BHA before it have been lobbying for, for many years. In answer to a question I asked during a recent Master Innholders webinar Kate Nicholls confirmed that if the government were ever going make a reduction, now was the time.
“The UK is now much more in line with the rest of Europe on VAT in hospitality - and is such welcome news! Hotels, restaurants, pubs have all been devastated by the impact of COVID-19 so this VAT reduction along with the Eat Out To Help Out voucher offer and the new Job Retention Scheme are so very welcome.
“It’s wonderful to be so publicly recognised by the government as a valuable contributor to the UK economy - something that those of us within hospitality have always known.”
UKHospitality CEO Kate Nicholls added: “It is reassuring that the chancellor singled out hospitality and tourism as a vital part of the UK’s economy and a pillar of social life around the UK. It is also good to see that government acknowledges that our sector has been uniquely hit by this pandemic.
“This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus. We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.”
Commenting on the furlough scheme, Sunak said that it would “wind down, flexibly and gradually, supporting businesses and people through to October”.
The government has instead introduced a Jobs Retention Bonus, whereby employers who bring someone back who was furloughed - and continuously employs them through to January – will be paid a £1,000 bonus per employee.
Insight: The hotel sector has been obsessed with a VAT cut since as long as this hack has been covering it and it’s fair to say that flying cars and hotels working out what the internet was were deemed more likely than this. And all it took was a pandemic.
Away from what happens in January and whether the sector can keep this shiny new toy and onto who will benefit from the cut. Some companies have already come out and said that they will pass it onto the consumers, who are suffering almost as much as the sector. There are those who will have little choice but to hold onto it.
For the game isn’t over and rent payments approach. The sector will need yet more underpinning as the road to higher occupancy is likely to be a long and stony and fraught with false starts, as we have seen from the pub closures this week triggered by outbreaks of Covid-19 amongst customers last weekend. The government has finally recognised the sector. Now it must continue to do so.