Call for long term VAT cut amid savings concern – Daily Business

Rachel Reeves: summer savings

A temporary cut in VAT for hospitality and entertainment centres should be a first step towards a permanently lower rate, say business groups.

While broadly welcoming the Treasury’s intervention, there has also been a warning that the cut will be offset by the cost of making changes and by the Chancellor urging businesses not to pocket the savings.

Rachel Reeves announced that the VAT rate will fall from 20% to 5% for family admissions to a range of visitor attractions, restaurants, cinemas and on children’s meals from 25 June to 1 September.

“I recognise that what matters for families is not just getting-by, but being able to enjoy time together without worrying about the next bill,” she told MPs.

“That is why I am launching the Great British Summer Savings scheme to help families and support our hospitality sector.”

UK Hospitality, which has long campaigned for a cut to VAT for the entire hospitality sector, said the move was recognition from the Government that a lower rate delivers immediate benefits for consumers, businesses and the economy.

It said the VAT cut was a ‘positive step’ for families, and urged the Government to now take a bold step by cutting VAT for the entire hospitality sector.

Kate Nicholls, chair of UKHospitality, said: “It’s good to see the Government recognise the importance of a lower rate of VAT for hospitality as the quickest and simplest way to lower prices and boost consumer confidence.

Kate Nicholls: downpayment

“This should now be viewed by Government as a downpayment on a wider shift to a lower VAT rate for the entire hospitality sector, to bring us in line with Europe.”

The UK’s 20% rate of VAT is the second highest in Europe, behind only Denmark. VAT in Germany is 7%, Ireland 9%, France, Italy and Spain 10%, Portugal (13%).

Louise Hellem, CBI chief economist, said: “While the measures outlined should provide a short-term boost to consumer confidence, businesses would welcome further engagement with government to develop longer-term solutions to tackle the underlying cost pressures facing the economy.”

Michael Kill, CEO of the Night Time Industries Association, was more critical of the cut, describing it as a “politically convenient but economically flawed measure” that excludes the UK’s struggling night-time and live events sector.

He said it was a major missed opportunity to deliver meaningful support to festivals, venues and cultural businesses.

A further cautionary tone came from Sue Rathmell, VAT partner at MHA, whio said: “The government has made it clear that it expects businesses to pass the VAT saving on to customers by way of reduced prices.

“This is in contrast to the reduced rate of VAT that applied during covid when businesses tended to keep their prices the same and pocket the VAT difference.

“While at first sight this seems to be a win-win for both holiday makers and business in terms of greater footfall it is not without significant challenges for companies.

“It will be time consuming and costly for businesses to recalculate their prices and amend their menus, displays and websites.

“Where a retailer has already received payment for tickets supplied for the period 25 June – 1 September 2026, the government expects retailers to refund the additional VAT to their customer.

“This will potentially be a lengthy exercise for retail businesses who will have to work quickly to get their systems set up for the change. Undoubtedly businesses will be relying on the VAT reduction bringing in a whole lot more customers to offset their extra costs.”

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