‘Pass on VAT cut benefit to customers if possible’

20-Jul-2020 - Last updated on 20-Jul-2020 at 14:21 GMT

Pass on: the Treasury said businesses should lower prices for customers if they can but it is up to bosses to decide what is best for them

The Government has confirmed it would like to see businesses pass on the benefits of its VAT cut to customers where possible.

However it said it understood these decisions were ultimately down to individual businesses given the struggles many had faced being closed for almost four months owing to the Covid-19 crisis.

A HM Treasury spokesperson said: “The Chancellor last week [Wednesday 8 July] set out a plan to protect, support and create jobs across the UK, including a cut to VAT for tourism and hospitality supporting over 150,000 businesses and protecting the jobs of the 2.4 million people the industries employ.

Customer benefits

The spokesperson added: “We want businesses to pass on the benefit to customers if they can, and almost four fifths of businesses said they did so in 2008. But we recognise that many of these businesses have been closed and without income for months, and decisions on prices are ultimately for businesses rather than the government.”

Some 78% of businesses said they passed the 2008 VAT rate-change saving on to their customers, according to the Treasury's figures.

Chancellor of the Exchequer Rishi Sunak set out measures to protect and create jobs in the House of Commons earlier this month. In addition to a meals discount scheme, he said the rate of VAT applied on "most tourism and hospitality-related activities" will be cut from 20% to 5% for the next six months.

This includes soft drinks but does not cover alcoholic drinks, which some wet-led operators said has left them feeling neglected and disappointed.

Protect jobs

UKHospitality chief executive Kate Nicholls said it was up for businesses in the sector to decide what to do with the reduction to best serve their stability in the trying trading months ahead.

She added: “The statement in which the Chancellor announced the VAT cut to 5% was made with the clear objective of protecting the hospitality and tourism sectors and, explicitly protecting jobs.

“In a sector with diverse offers, it is right individual businesses, which are under enormous financial pressure after three months of closure, have the scope to do this, in a way that works best for them as well as providing great value to customers, securing our valued workforce and making sure our much-loved businesses endure.”

Overdue initiative

Pub giant JD Wetherspoon (JDW) said it would be dropping the price of a number of products including real ale, coffee, soft drinks, breakfasts, burgers and pizzas, with all reductions in action from today (Monday 20 July).

JDW founder Tim Martin described Sunak's policy as "a sensible economic initiative, which is long overdue.”

He said: “Not every UK hospitality business will be able to reduce prices immediately. Some will need to retain the benefit of lower VAT just to stay in business. Others may need to invest in upgrading their premises.

“However, lower VAT and tax equality will eventually lead to lower prices, more employment, busier high streets and more taxes for the Government."

Some have said Sunak's measures to stimulate spending in hospitality venues will have a limited success owing to the reduced capacity many pubs are operating with while social distancing guidelines remain and the public's hesitation to return to pubs in the wake of the pandemic.