Rishi Sunak has delivered his Summer statement and announced measures to protect, support and maintain jobs across the UK.
Job retention and creation was at the heart of the statement with the Chancellor also announcing that VAT will be reduced to 5% for good and services supplied by the tourism and hospitality sector. Another surprise announcement was the introduction of the ‘Eat out to help out’ 50% discount scheme on meals and non-alcoholic drinks Monday to Wednesday, up to £10 a head.
VAT reduction to 5% to boost the hospitality and tourism industry, along with the introduction of the £10 ‘eat out to help out’ discount during August to help hospitality sector is as much about the psychology of empowering people to get out and start spending as it is about the financial injection. Similarly, help to get 16-24 year olds into the workplace through support of apprenticeships schemes and placement funding to create new jobs is positive from a psychological perspective – it will get these young people into the work place, understanding how you act in a professional environment and breaking down the barriers to getting back to work from a mindset and self-worth perspective
While the temporary VAT rate reduction to help stimulate the tourism and hospitality sector will hopefully get people out and spending, there are certainly some things that businesses will have to consider. This includes, amongst others, how they will calculate the new rate if prices are already inclusive of VAT, as is the case for most retailers. They will also have to decide whether they pass on any benefits to consumers
Changes to accounting software will also need to be made, as well as working out how deposits paid prior to the rate change but invoiced after will be dealt with. The same goes for any sales made prior to the rate change but invoiced afterwards.
What does this cut in VAT mean for consumer’s personal finances?
For consumers VAT is an absolute cost, meaning a cost they cannot recover.
Assuming businesses pass on any VAT rate cut to consumers, retail goods and services will cost less and so consumers will have more money in their pockets and so more spending power. An increased spend would assist a consumer led revival of the retail, travel and motor sectors, amongst others, as people go about getting their lives back to normality.
For those consumers still facing uncertainty, such as a COVID-19 legacy of part-time working or even redundancy, this VAT rate cut will be a welcome boost to an unenviable situation.
This statement is the result of a recession which is demand led, rather than financially led as we have seen in the past, and therefore we simply need to keep people in jobs so they can spend money.
This statement goes a long way to getting people back to work and spending and we look forward to a robust Autumn budget announcement which outlines medium term commitments rather than short term incentives.
Find and contact your local Haines Watts office