UK Politics

Will the hospitality industry pass on VAT cuts to consumers?

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The hospitality and tourism sectors are set to benefit from a reduction in VAT from today – but there are concerns the savings might not be passed on to consumers.

More than 80% of hospitality firms stopped trading in April due to the coronavirus lockdown, according to data from the Office for National Statistics.

Last week, Chancellor Rishi Sunak announced a cut in value added tax (VAT) from 20% to 5% in an effort to boost the industry.

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The new rate will be for food and non-alcoholic beverages in restaurants, cafes and pubs as well as hotel accommodation and entry fees to certain attractions, until 12 January.

But some experts have questioned whether the move will result in cheaper prices for customers and whether it is even the right way to help the recovery.

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Hinesh Patel, portfolio manager at Quilter Investors, said: "The government is gambling on the public to head out and spend, spend, spend in one of the hardest-hit sectors to get the economic cycle rebooted.

"It remains to be seen if businesses will pocket the difference or pass on the saving to patrons."

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Paul Johnson, director at the Institute for Fiscal Studies, added that it might have been better to wait before cutting the tax, to see what the sector's main challenges are.

He said: "Maybe it would have been better to wait until we know whether the real problem is on the demand side – people need to be encouraged to go out and eat – or on the supply side – with social distancing restaurants can't serve enough people."

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