Politics

Chancellor announces VAT cuts to revive the economy

Rishi Sunak was made Chancellor after the departure of Sajid Javid in October last year. Source: Ministry of Housing, Communities and Local Govt (via Flickr)

By Morgan Perry

The Chancellor of the Exchequer has announced several initiatives to attempt to get the economy moving again in the wake of the Coronavirus pandemic.

Rishi Sunak announced on Wednesday that the Government will cut VAT to just 5% (down from the current rate of 20%) for goods and services in the hospitality sector and provide everyone with a 50% voucher at select restaurants to encourage them to eat out in August. Additionally, the Government will cut stamp duty to stimulate a flagging housing market.

Most importantly for Wales, the new steps announced will amount to more than £500m in additional financial support.

The Treasury has also announced a £1,000 bonus per employee brought back by employers under the Coronavirus Jobs Retention Scheme.

Announcing the changes following Prime Minister’s Questions, the Chancellor reminded the Commons that “hardship lies ahead”. It’s hoped that the moves will stimulate a fragile hospitality sector as the economy begins to open up following the ongoing pandemic.

The Chancellor has promised key details for funding the new initiatives will be announced as part of the Autumn Budget, which is currently scheduled for October.


VAT cuts

The cuts will see a reduction in VAT from 20% to 5% across the hospitality sector, including restaurants, accommodation, and attractions. The Government has not announced how these cuts will be funded.

Mr Sunak’s reductions apply to eat-in and takeaway food, non-alcoholic drinks, as well as B&B accommodation, campsites and caravan parks. The reductions will also be applied at theme parks, zoos and cinemas.

The reduction in VAT will remain active for the next six months and comes into place next Wednesday, July 15. It is hoped that the move will soften any financial blow to the industry, which employs 1.8 million people in cafés, pubs, and restaurants.

“Eat Out to Help Out”

Alongside the reduction in VAT, the Chancellor announced a scheme to encourage people to eat out during August.

Dubbed “Eat Out to Help Out”, from Monday to Wednesday, meals will be 50% off in August, subsidised by the Government. There will be a maximum discount of £10-per-person, and businesses must register with the Government. The estimated cost for this scheme is half-a-billion pounds.

Whilst the move goes some way to support businesses financially, it is not clear whether the scheme will encourage people to flock to pubs and restaurants so soon after the Government started to ease its lockdown.

Stamp Duty

In addition to the hospitality sector, the Government is looking to come to the rescue of home buyers and sellers. At the beginning of the pandemic, the sale of many properties was paused and viewings were cancelled.

Promising a holiday on stamp duty – the tax paid on the purchases of homes in England and Northern Ireland – the Chancellor stated that the Government will raise the lower limit at which tax is paid. Normally, first-time buyers pay 5% on properties worth £300,000-£500,000.

The holiday, which comes into effect from today, will differ in Wales and Scotland, where stamp duty is devolved.

Coronavirus Jobs Retention Scheme

The Treasury also committed to an additional element of the Coronavirus Jobs Retention Scheme. The scheme is currently paying up to 80% of furloughed employees’ salaries.

If businesses ask an employee to return to work, and they’re still employed in January, the employer will be paid a one-off bonus of £1,000. The employee must have been paid an average of more than £250-a-month from November to January.

It’s estimated the scheme will cost more than £9bn if all employees currently supported by the Government return to work.

Youth unemployment “kickstart scheme”

Finally, in a bid to tackle an expected rise in youth unemployment, the Government announced a scheme to get young people into work.

The £2bn “kickstart scheme” will pay for 6-month-long work placements for 16 to 24-year-olds currently claiming Universal Credit. Payments from the Government will cover up to 25hrs a week at the national minimum wage, as well as offering a £1,000 bonus to businesses who offer work experience placements.

It is hoped that the programme, which will start in the Autumn and run until 2021, will prevent long-term unemployment.

In the period February to April 2020, youth unemployment was 12.2%, up from 11.2% a year ago. Between March and May of this year, the number of people under 24 claiming Universal Credit increased to just under 500,000.

A similar scheme has been run in Wales by the Welsh Government since 2012; many of the key elements of the new UK-wide initiative appear the same.


Today’s announcement has received some critique, however.

MPs from other parties have suggested that the stimulus fails to tackle “deep inequalities caused by a decade of austerity”.

Meanwhile, Labour also dismissed the Chancellor’s announcements:

Impact in Wales

Because many areas of government are devolved, many of the Government’s announcements thus far have applied to England only.

That’s not the case today, however, and the UK Government has promised that the new initiatives will amount to “an additional £500m of Covid-19 funding for the Welsh Government”. This is because funding available for the government in Wales is allocated in relation to spending in England; using a method called the Barnett Formula.

The Welsh Government has been given an additional £2.8bn in funding since the start of the crisis.

In response, the Welsh Government’s Finance Minister, Rebecca Evans also touched on the lack of support for public services, tweeting:


The Government’s mid-week announcement will likely be welcomed by those working in the hospitality and tourism sector. It is, of course, too soon to know how these changes will resonate with the public.

According to a YouGov poll released on Tuesday, only 5% of respondents said they went to the pub, after they re-opened this weekend; many may wish to continue to stay away, despite the incentives to eat out.

Follow @gairrhyddpol for all of the latest updates from the world of politics.

Politics Morgan Perry

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