U.K. Pubs and Restaurants Welcome Stimulus While Risks Loom

(Bloomberg) -- Britain’s hospitality industry welcomed proposals for a reduction in value-added tax and discount restaurant meals while warning that the sector is still at risk.

The measures may help rebuild confidence and spur more people to go out, which could buy time for businesses gasping to survive after being slammed by months of lockdown, industry officials said. Key to any longer term recovery will be a sustained resurgence in demand in the coming months, which remains far from certain.

Reductions in VAT and other steps are a “huge bonus,” but many companies still face huge rent bills, and the industry isn’t “out of the woods,” said Kate Nicholls, chief executive officer of UKHospitality, a trade association representing more than 700 companies.

U.K. Chancellor of the Exchequer Rishi Sunak set out a radical blueprint on Wednesday to pump life into the economy, including a six-month cut to VAT for restaurants, hotels and attractions to 5% from 20%. Britain’s hospitality industry has seen limited business since reopening last weekend because of social distancing measures and safety concerns.

Sunak also announced an “Eat Out to Help Out” discount, offering a 50% price cut on meals at participating restaurants between Mondays and Wednesdays in August.

The VAT cut is “the best news we’ve had in four months,” said Caroline Roylance, owner of The George at Fordingbridge in Hampshire, southeast England. She said the pub had tried to offer takeout meals during lockdown, but there wasn’t enough demand to make that a viable option. The government’s measures “will help us make it through the next few months, because trade is unlikely to return to pre-Covid levels for some time.”

Tax Rates

The pub industry will be “extremely grateful” for the government’s support over the next few difficult months, said Tim Martin, chairman of JD Wetherspoon Plc, in an email. The VAT initiative, though temporary, will help even out tax rates between hospitality companies and supermarkets, something his company has long campaigned for, he said.

Ian Wright, CEO of the Food and Drink Federation, called on the government to provide additional employment support to the sector.

Sunak must “keep the option of extending full furlough support to hospitality and their food and drink suppliers in his back pocket, so we do not lose vital jobs and businesses,” Wright said.

Retailers reacted less positively to the measures. Helen Dickinson, CEO of the British Retail Consortium, questioned why the government had not extended the VAT cut to her industry, which employs nearly twice as many workers as the hospitality and tourism sectors.

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