Announcing his plans to address the UK economy’s largest slump in more than 300 years in his latest Budget, Rishi Sunak stated that the temporary reduction in VAT from 20% to 5% on food, soft drinks and accommodation would be extended for a further six months until 30 September.
Introduced in July 2020 and already extended once, the delaying of the measure’s cut-off beyond 31 March could add £800m to the estimated £3.3bn cost so far, according to figures reported in The Guardian.
What’s more, Sunak announced that rather than returning to the 20% rate in the autumn, the Government would introduce a 12.5% interim rate for a further six months, meaning that the standard rate won’t be reintroduced until April 2022 – meaning that its VAT cut for the next year will total almost £5bn.
Sunak maintained that while the Government has pledged £280bn of support in its “unprecedented” response to the Covid-19 pandemic thus far – “one of most comprehensive and generous in the world” – he would endeavour to do “whatever it takes” to bolster the economy, which the Office for Budget Responsibility estimates will return to pre-Covid levels by middle of next year.
“This Budget meets the moment with a three-part plan to protect the jobs and livelihoods of the British people,” he said.
To protect hospitality and tourism jobs, the 5% reduced rate of VAT will be extended for six months to 30th September.— Rishi Sunak (@RishiSunak) March 3, 2021
And even then, we won’t go straight back to the 20% rate. We’ll have an interim rate of 12.5% for another six months. #Budget2021pic.twitter.com/Zn4UBxqz8t
Reacting to Sunak’s Budget announcement, UKHospitality chief executive Kate Nicholls took to Twitter to voice her approval.
“Welcome news on extension of lower rate of VAT for the full financial year - 5% until September and 12.5% until April. A lower rate for longer would have sped up the recovery but good to have the long-term route map,” she said.
The announcement comes after a January survey of more than a thousand businesses found that 90% of those quizzed felt the VAT cut has been “important, very important or crucial” to their survival so far – with more than 75% claiming they may not have been able to continue without it.
The research from the Cut Tourism VAT Campaign, UKHospitality, the Tourism Alliance and the Association of Leading Visitor Attractions also found that if 20% was restored in April it could lead to 310,000 sector redundancies.
What’s more, one operator previously told The Morning Advertiser (MA) that the measure had been more important to her business than lockdown grants.
“The VAT cut was a massive help when we were open last year, it helped us recoup the losses from when we weren't open," Louise Robinson, who runs two pubs in Northamptonshire, explained in January.
The UK recently avoided a double dip recession after registering 1% growth in the final quarter of the year, 2020 saw the biggest annual drop in GDP (9.9%) since the Great Frost of 1709 when the economy shrank by 13%.
This saw food and beverage service output from venues such as pubs almost halved (48%) while alcoholic drink manufacturing fell by a third (33.9%) according to the ONS.