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VAT cut for UK hospitality excludes alcohol

The UK chancellor has excluded alcohol from a six-month VAT cut for the hospitality and tourism sectors.

The UK government will offer money off vouchers to help the hospitality sector

Chancellor Rishi Sunak revealed a number of new measures yesterday (8 July) to help restart the nation’s economy during the coronavirus pandemic.

Sunak will cut the rate of value added tax (VAT) on hospitality and tourism from 20% to 5% from 15 July 2020 to 12 January 2021. The cut, which excludes alcoholic drinks, will apply to food and alcohol-free beverages.

To encourage drinkers to return to pubs, bars and restaurants, Sunak also announced the new Eat Out to Help Out scheme, which will provide a 50% reduction for sit-down meals in on-trade outlets, as well as cinemas and visitor attractions such as zoos, theme parks and distilleries. The discount will only be applied to food and non-alcoholic drinks.

The discount will apply to UK venues from Monday to Wednesday every week during August 2020, offering a maximum discount of £10 (US$12) per head. Sunak said businesses can register for the scheme online from next Monday (13 July).

In addition, the UK government revealed a new Job Retention Bonus scheme, offering UK employers £1,000 (US$1,264) for each furloughed worker who is still on payroll as of 31 January 2021.

Industry response

Trade group UK Hospitality welcomed the chancellor’s move to offer targeted measures for the hospitality and tourism sectors, which have been “uniquely hit” by the pandemic.

The trade body’s chief executive, Kate Nicholls, said: “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.

“The measures to support job retention and recruitment are very positive. Even after the reopening of some venues, we estimate that around 1.5 million workers in our sector are still furloughed. With revenues likely to be down for the foreseeable future, the support measures to get workers off furlough and back into work will be greatly appreciated.”

However, Nicholls noted that “significant challenges” lie ahead, such as rent burdens.

She said: “The biggest of these is the spectre of rent liabilities which many businesses are still facing from their closure period. Rent bills have piled up over the past few months even though venues were closed, and businesses are now facing huge rent debts with prospects for the future still in the balance. We are going to need government support on this before too long.”

Trade body the Scotch Whisky Association (SWA) also praised the new measures, which will help the UK’s on-trade and Scotch whisky tourism.

Karen Betts, SWA’s chief executive, said: “It is very good to see measures that encourage people to visit pubs, bars and restaurants once again – to socialise and to support those businesses – alongside a clear message from government that it is safe to enjoy a dram once again in a bar near you.

She added that the announcement will also “support Scotch whisky tourism and the reopening of Scotch whisky distillery visitor centres over the summer”.

‘Win-win measure’

However, both the SWA and trade group the Wine and Spirit Trade Association (WSTA) noted that more could be done for the drinks sector, such as a cut in spirits duty.

Betts said: “We are looking forward to further discussions with the chancellor and his team ahead of the autumn budget. A cut in spirits duty would continue to support the Scotch whisky industry, hospitality and retail sectors – and all the evidence is that cuts to excise boost government revenues, making an excise cut a win-win measure that would also secure hundreds of millions of pounds of investment across the UK.”

Miles Beale, WSTA chief executive, said the exclusion of alcohol from the scheme was “disappointing”.

He said: “It is encouraging to see the chancellor recognising the exceptional economic hit the hospitality sector has taken since the country went into lockdown.

“We hope that their offer of vouchers for money off food and non-alcoholic drinks at pubs and restaurants helps the parts of the hospitality sector, that can open, to claw back some desperately needed funds.

“However as so much of the income for these establishments comes from the sale of alcohol it is disappointing for the hospitality industry that alcohol isn’t included – and of course its suppliers are again left with little to cheer about.

“As the chancellor indicated his thoughts will turn next to the budget. With the UK wine and spirit sector worth almost £50 billion [US$63.2bn] to the economy and wine the nation’s most popular drink, he should at least rule out raising taxes on alcohol at the autumn budget.”

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