Budget 2021: Rishi Sunak extends VAT cut ‘to keep pub prices low’

BRITS are set for cheaper pints and meals out this summer after Rishi Sunak today announced he is extending a VAT cut for the hospitality industry.

The Chancellor confirmed the detail in his Budget this afternoon, with the 5% reduced rate of VAT to be extended for six months to September 30.

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And the standard rate won’t be returned to until April next year, with an interim rate of 12.5% for another six months after September.

In total, the move will see VAT cut by almost £5bn.

The Sun first revealed how the Chancellor would continue the VAT (value added tax) cut earlier this week to help save jobs in struggling industries.

Mr Sunak slashed VAT from 20% to 5% for food, drink and holiday businesses as part of his mini-Budget on July 8.

Speaking today, Mr Sunak said: “One of the hardest hit sectors has been hospitality and tourism: 150,000 businesses that employ over 2.4 million people need our support.

“To protect those jobs, I can confirm that the 5% reduced rate of VAT will be extended for six months to 30th September.

“And even then, we won’t go straight back to the 20% rate. We’ll have an interim rate of 12.5% for another six months; not returning to the standard rate until April next year. In total, we’re cutting VAT next year by almost £5bn.”

The tax cut was due to remain in place until January 12, 2021, but in this was extended until March 31, 2021 in an update last September.

VAT is a tax paid by businesses to HMRC on the items or services they sell, which is typically passed on to customers in the price they pay for goods and services.

If the savings are passed on in full, it means cuts of 12.5% on the end price people pay, or household savings of £160 a year, according to the Treasury.

In terms of holidays, the saving could cut £300 off a one-week family staycation.

In July 2020, Wetherspoons slashed prices by up to 28% following the tax break, with pints starting at £1.29.

But businesses don’t have to pass on the tax break to shoppers.

Last summer, KFC chose not to cut menu prices by 12.5% across the board, instead it reduced the price of “fan favourites” for a limited time.

McDonald’s recommended its franchises cut prices but they didn’t have to.

The extension will be a boost to the struggling tourism and hospitality industries, which have been forced to close for months on end due to the coronavirus pandemic.

As part of Prime Minister Boris Johnson’s roadmap out of lockdown, UK staycations can go ahead and pub beer gardens will reopen from April 12 at the earliest if the government’s timeline for unlocking the country remains on course.

Pubs and restaurants won’t be able to reopen fully for indoor drinking and eating until at least May.

Kate Nicholls, chief executive at tradebody UKHospitality, previously told The Sun that extending it will be a “lifeline” for many businesses, but wants to see it extended for another year, until March 2022.

She said: “Many businesses haven’t felt the benefit of the lower rate due to lockdowns and extreme restrictions, so an extension of just a few months simply won’t help.

“The Chancellor must meet the magnitude of this moment with the right measures that will underpin hospitality and the wider economy’s recovery.”

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Pizza Hut, Burger King and Caffe Nero were among 160 top hospitality firms urging Chancellor to extend the VAT reduction.

We’ve rounded up a full list of businesses where VAT has been cut including cinemas and hotels.

Check out our guide on what to do if you already pre-booked a holiday following the VAT cut.

This post first appeared on thesun.co.uk