Chancellor of the Exchequer Rishi Sunak has slashed VAT for the tourism and hospitality sectors - from 20 per cent to just five per cent.
The change comes into effect on July 15 and will last until January 12, 2021, the Chancellor told MPs on Wednesday during his mini-budget.
The move is aimed at protecting millions of jobs in the industry, which has been hard hit by the coronavirus lockdown.
The cut in VAT applies to food, accommodation and attractions, which have been disproportionately hit by the coronavirus pandemic.
It also includes pubs, restaurants, cafes and zoos and will cost the Treasury an estimated £4bn.
Mr Sunak said he wants to see pubs, restaurants, cafes and B&Bs 'bustling again', telling MPs: “At the moment, VAT on hospitality and tourism is charged at 20 per cent.
“So I’ve decided, for the next six months, to cut VAT on food, accommodation and attractions.”
Mr Sunak said VAT will be reduced from 20 per cent to 5 per cent from July 15 until January 12 to help, noting: “This is a £4bn catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs.”
Mr Sunak said he would combine it with a 50 per cent discount on eating out in restaurants and cafes at the start of the week as part of an 'Eat Out to Help Out' discount subsidised by the Treasury.
The VAT cut will not apply to alcohol served in pubs or restaurants.
Mr Sunak unveiled a plan for jobs in a £30bn mini-budget, which he said was designed to get the country through the economic crisis triggered by the Covid-19 pandemic.
In response, Labour's Shadow Chancellor, Anneliese Dodds, said the party is not calling for tax rises, but 'growth'.
She told the Commons: “If it (the government) does increase taxes during the recovery and cuts back on the public services we all rely on this will damage demand and inhibit our recovery.
“Labour is not calling for tax rises, we are calling for growth.
“Now the Tory manifesto committed to no rises in income tax, national insurance or VAT and therefore it is for the Conservatives to set out how any additional spending will be paid for.
“It is the Chancellor’s job to make sure the economy bounces back from this crisis so there is money in the coffers to protect the public finances.”
Joss Croft, chief executive of UKinbound, a trade association representing the inbound tourism industry, said: “The Chancellor’s economic recovery plan clearly recognises the value of hospitality and tourism, and cutting VAT from 20 per cent to 5 per cent and the Eat Out to Help Out scheme will deliver immediate positive impacts for businesses and consumers.
“These measures will not help the many businesses involved in inbound tourism who drive regional economies and jobs, and who are on the brink.
“Longer-term support will still be required for these businesses, which have been hit even harder than domestic and outbound.”
David Weston, chairman of the Bed & Breakfast Association, said: “We are delighted by the VAT cut on behalf of our larger members, guesthouses and small hotels who are VAT registered.
“It will help stimulate demand and, once our borders open to incoming tourism, will also help UK tourism overall as Britain’s VAT rate has been amongst the highest of our international competitors.”
