Summer Statement: Sunak’s ‘eat out to help out’ scheme to kickstart hospitality

The chancellor has announced a temporary cut in VAT from 20% to 5% for the tourism and hospitality sectors.

In the third part of his three-pronged Plan for Jobs announced today, chancellor Rishi Sunak focused on resuscitating the hospitality and tourism sectors, which employ more than two million people.

These industries have been particularly hard hit by coronavirus, with more than 80% of businesses closing in April, he said.

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The main focus of his announcement was a cut to VAT paid on food, hotels and B&Bs, and entertainments. This currently stands at 20% but will be cut to 5% from today, with the lower rate remaining in place until 12 January 2021. This will save households around £160 on average, according to the Treasury.

A less anticipated measure was the launching of the ‘Eat Out to Help Out’ discount, to try and get people back into cafes and restaurant after the pandemic.

The scheme will run on Mondays, Tuesdays and Wednesdays during the month of August and will entitle anyone, including children, eating out to 50% off their bill, up to a maximum £10 per head.

Cafes and restaurants will need to register through a website launching on Monday and will then be able to reclaim money back after customers spend with them. 

It is anticipated that the two measures between them will help to support over 2.4 million staff at more than 150,000 businesses, says the Treasury. 

However, while these measures are welcome initiatives for the hospitality sector, the chancellor made no mention of more broadly based moves, such as cutting VAT on all goods and services, or reducing NICs for employers.

Pauline van Brakel, chief product officer at money management app Yolt, says: “The Eat out to Help Out scheme and the VAT changes may be a welcome initiative for many worrying about their finances while trying to return to a sense of ‘normal living’, and it will hopefully serve as a much-needed cash injection for many businesses. But this initiative is unlikely to settle the worries of 28% of the UK, who claim that if their income was due to stop today, they would be unable to meet their living costs for more than one month.”

It's also questionable how much impact cuts to VAT will have on consumer confidence, which is key to getting this sector up and running again.

Anna McEntee, product director at comparethemarket.com, points out: “A cut to VAT may be welcomed by sectors of the economy which have suffered the most during lockdown, but our Household Financial Confidence Tracker suggests that a cut to VAT may do little to convince people to get out and spend. A total of 46% said that slashing VAT would incentivise them to visit shops in person, but 52% said it would make no difference. Among those who are already unwilling to visit newly opened shops, only a third (33%) thought that cutting VAT might change their mind. 

“While the government’s additional measures to introduce a substantial 50% ‘eat out to help out’ discount could go some way to entice people out of their homes and stimulate the restaurant sector, concerns around social distancing are still predicted to significantly impact areas such as retail.”

She suggests that online shopping is likely to be a habit that will be harder to break than the chancellor might hope. “Increased comfort with shopping online suggests it will take some time before footfall picks up again and for retailers to start to see the benefits of an easing lockdown. Our research shows that 59% of people do not plan to go to these shops in person.”

Neil Birrell, chief investment officer at Premier Miton investors, comments: “Overall, the chancellor’s package of employment measures and the support for the hospitality industry and the consumer are positive, but do not go very far in the face of the economic situation we are in. The spending required for these measures is not significant in the overall scheme of things.”