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Treasury Says There Are ‘No Plans’ to Extend the VAT Cut Keeping Restaurants Going

The cut in the tax from 20 percent to 5 percent currently expires on 31 March

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U.K. VAT Rise Hits Retail Sector
A receipt with the VAT tax at 20 percent

The U.K. coronavirus VAT rate reduction from 20 percent from 5 percent which has helped keep restaurants afloat through the COVID-19 pandemic is set to end on 31 March. Treasury minister Jesse Norman told the House of Commons that the government has “no plans” to extend the tax relief, according to the Telegraph.

Norman said that “The relief comes at a significant cost, and while the government keeps taxes under review, it has no current plans to extend it further.” If measures are indeed under review, having “no current plans” to extend it further is perhaps less terminal than businesses might think, but at this stage, it’s the waiting for firm financial plans that is leaving restaurants mired in uncertainty over when coronavirus lockdown will end.

Three very different London restaurants shared the impact of the VAT cut, and their testimony was stark: the money saved can what stops them laying off workers, or closing altogether. Trade lobby group U.K. Hospitality has also repeatedly pushed for the cut’s extension in recent days, alongside an extension to the business rates relief which also runs out on 31 March.

The Treasury’s desire to reduce expenditure is not a surprise; reducing it on 31 March would, however, lead to questions from hospitality businesses. While the government has provided financial support since the earliest days of the pandemic, its messaging as vaccines have first come into production and circulation has shifted from “we don’t know when this will end” to “if you can make it this far, good times are on the other side.” “This far” now appears to be in the region of April/May, one or two months after the VAT cut, business rates relief, and rent protections expire.

Chancellor Rishi Sunak’s approach to financial management does not include — as much as many in the sector might disagree — not caring about restaurants. The hundreds of millions spent on “Eat Out to Help Out,” the epidemiological wisdom of that policy notwithstanding, are testament to the Treasury’s understanding of the significance of hospitality to economic recovery. He introduced grants for restaurants in tier two, despite their being able to open. He has always pushed for as much of the economy to stay open as much as possible, but he has done so while attempting to limit money spent on supporting businesses closed by restrictions — this is the root of the substantial meal and Scotch egg tedium.

But as Stephen Bush saw in I News, worrying about debt in the middle of a pandemic is a very bad time to worry about debt. Worrying about debt in the relatively modest interim period before the worst impact of the pandemic on businesses is over according to the government’s own timeline is even worse. If government parsimony closes restaurants, pubs, cafes, and bars for good just before they have the opportunity to recover, then the waste of capital both financial and political will be as cataclysmic as the impact on Britain’s streets.

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