10 July 2020
The Rishi Sunak give-away continues as he makes his mark as Chancellor again in July’s Summer Statement. The Chancellor has come up with some novel schemes, but it remains to be seen how effective they will be.
In his Economic Update, the Chancellor said that the Government will cut VAT on hospitality, whereby VAT on food, accommodation and attractions will be cut from 20% to 5% from next Wednesday (15 July) for six months until 12 January 2021. It will apply to eat-in or hot takeaway food and non-alcoholic drinks from restaurants, cafes and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, attractions like cinemas, theme parks and zoos.
He also introduced the ‘Eat out to help out’ plan, which he said would help protect 1.8m jobs, at a cost of £0.5bn. Meals eaten at any participating business, Monday to Wednesday, will be 50% off in August, up to a maximum discount of £10 per head for everyone, including children.
These announcements have been well received by the hospitality industry. As a result of social distancing restrictions, the capacity of restaurants and pubs has been reduced substantially, having an adverse effect on revenues and cashflow, so any initiatives that the Government can put in place to stimulate customer demand will be welcomed.
However, deep concerns still remain in the sector. Questions surround how consumer demand will pick up in the coming months and the additional financial liabilities coming down the line as the Government’s furlough scheme unwinds and rent debt builds up for those who are deferring rent payments, afforded by the protection measures given to tenants under the Covid-19 legislation.
The Chancellor has pledged to pay all firms £1,000 for each worker they bring back from furlough. It will cost £9bn if the 9 million individuals currently furloughed return to work. The job retention bonus will help firms protect jobs, but with many firms running low on cash and reporting a lack of demand, more direct support for firms is probably going to be required in the future, from grants to further business rates relief.
Commenting on the announcement, UKHospitality Chief Executive Kate Nicholls said:
“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.
“Customer confidence is key to our sector’s revival and our ability to help Britain’s economic recovery. Applying every precaution to provide safe venues will count for nothing if customers are not coming through our doors. 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.”
We will provide further details on these announcements when these are published. If you are in the hospitality sector and would like to discuss the implications of these measures, please contact me or your usual UHY specialist.
Click here to download your copy of our Summer Economic Update summary.