This is a £4 billion catalyst for the hospitality and tourism sectors
Unveiling the rule change, Mr Sunak said he wants to see pubs, restaurants, cafes and B&Bs “bustling again”, telling MPs: “At the moment, VAT on hospitality and tourism is charged at 20 percent.
“So I’ve decided, for the next six months, to cut VAT on food, accommodation and attractions.”
Mr Sunak said VAT will be reduced from 20 percent to five percent from July 15 until January 12 to help.
He added: “This is a £4 billion catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs.”
Rishi Sunak cuts VAT from 20% to 5% for entertainment and hospitality sectors
Mr Sunak said the Government would also subsidise half-price restaurant meals served on Mondays, Tuesdays and Wednesdays in August.
Pubs in England reopened on Saturday after an enforced three-month lay-off – but the industry has been badly hit by the pandemic, not least as a result of widespread concern about the ongoing risk of catching the disease in public areas.
British high-street retailers, as well as pubs and restaurants, have so far seen only around half their customers return as lockdown measures have been partially relaxed in recent days and weeks.
The Government’s furlough scheme winds down in October, and Mr Sunak stressed he was acting in an attempt to avoid widespread redundancies as state support is withdrawn.
VAT for pubs is being temporarily slashed to five percent
He added: “While we can’t protect every job, one of the most important things we can do to prevent unemployment is to get as many people as possible from furlough back to their jobs.”
Under the Jobs Retention Bonus, firms will be paid £1,000 for each employee they bring back from furlough and continuously employ through to January on an average of at least £520 a month.
Mr Sunak said: “We’ll pay the bonus for all furloughed employees.
“So if employers bring back all nine million people who have been on furlough, this would be a £9 billion policy to retain people in work.
“Our message to business is clear: if you stand by your workers, we will stand by you.”
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Measures announced by Mr Sunak include:
- A £2 billion scheme of taxpayer-funded work placements for 16-to-24-year-olds on Universal Credit and at risk of long-term unemployment.
- A £3 billion green package, with grants for homeowners and public buildings to improve energy efficiency.
- A £111 million programme of unpaid traineeships combining work experience with training.
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Jon Stevens, tax partner at global legal business DWF, said of the VAT cut: “The hospitality sector has long campaigned for a reduced rate of VAT and it is a shame that it has taken the economic damage of COVID-19 to produce a temporary tax cut.
“However, businesses in the restaurant and hospitality sectors will welcome the reduction in VAT to five percent that will hopefully encourage people to spend money with them while we recover from lockdown.”
Ben Murray, Director of Maritime UK, the umbrella body for the UK’s £46bn maritime sector, added: “Coastal communities across the country have been among some of the hardest hit areas of the country due to COVID-19.
“Marine tourism, including boating, cruise and passenger transport, which is a major part of a coastal economy, has been decimated due to social distancing.
“As long as these measures cover maritime, they will be a fantastic boost to coastal communities across the UK.”
TUC General Secretary Frances O’Grady said: “Mass unemployment is now the biggest threat facing the UK, as shown by the thousands of job losses at British Airways, Airbus and elsewhere. The government must do far more to stem the rising tide of redundancies. We can’t afford to lose any more good skilled jobs.
“The chancellor should have announced targeted support for the hardest-hit sectors like manufacturing and aviation. Struggling businesses will need more than a one-off job retention bonus to survive and save jobs in the long-term.
Bookmaker Ladbrokes swiftly responded to Mr Sunak’s mini-budget by instaling him as 4/1 second-favourite in the betting to replace Boris Johnson as PM – second only to Labour leader Sir Keir Starmer at 2/1.
Mr Sunak is clear 3/1 favourite to become next Conservative Party leader with Michael Gove an 8/1 shot and every other name being 12/1 or bigger.