VAT in restaurants, hotels and cinemas cut from 20 per cent to five per cent until January

VAT in restaurants, hotels and cinemas will be cut from 20 per cent to five per cent in a bid to protect 2.4 million jobs.

Rishi Sunak, the Chancellor, announced the tax cut to give businesses in the hospitality and leisure sector confidence that "the demand will be there" as they reopen their doors.

From next Wednesday until January 12, VAT on food, accommodation and attractions will be charged at five per cent.

The measure will cost an estimated £4.1 billion, according to the Treasury.

In those targeted sectors, the move goes further than the emergency VAT cut introduced by Labour in the wake of the 2008 financial crisis, when the tax was cut from 17.5 per cent to 15 per cent.

Mr Sunak said in his mini-Budget: "This is a £4 billion catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs."

The reduced rate will apply to sales of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.

Mr Sunak told MPs the public had been "cautious about going out" and pointed out how hard businesses have worked to reopen safely after lockdown restrictions were partially eased.

He added: "We need to give these businesses the confidence to know that if they open up – invest in making their premises safe, and protect jobs – demand will be there, and be there quickly."

The Chancellor said the tax cut would apply to eat-in or hot takeaway food from restaurants, cafés and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, as well as cinemas, theme parks and zoos.

Further guidance on the VAT relief will be published by HM Revenue and Customs in the coming days.

VAT was introduced in the UK in 1973 at a rate of 10 per cent on most goods. It has since grown in both scale and complexity.

Economic think tank the Resolution Foundation said the cut was a "substantial intervention" which will "have a dual effect of boosting consumption in those sectors when it reduces prices, and giving cash to struggling businesses when it does not".

Helen Miller, the deputy director of the Institute for Fiscal Studies, said on Wednesday: "The tourism and hospitality sectors have been particularly badly affected by the crisis.

"Cutting VAT and discounting restaurant meals will increase output in these sectors if businesses have the capacity to serve more customers despite social distancing requirements."

The cut was welcomed by the hospitality industry. Kate Nicholls, the chief executive of UK Hospitality, the industry body, said: "This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus.

"We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.

"It is reassuring that the Chancellor singled out hospitality and tourism as a vital part of the UK's economy and a pillar of social life around the UK.”

Dr Adam Marshall, the director general of the British Chambers of Commerce, said: "The VAT cut will help firms in the hospitality and tourism sectors working hard to restart after many months of lost revenue."

Mr Sunak's decision to cut the rate VAT comes on top of previous reliefs the Government has already introduced in response to the coronavirus pandemic. More than 400,000 businesses have been able to defer VAT payments until next March.