Chancellor extends VAT support but tourism still ‘overlooked’, says industry

The reduced rate of VAT for tourism and hospitality will be extended until the end of March, but any further sector-specific aid for the industry was absent, as Chancellor Rishi Sunak today outlined a package of measures to replace the furlough scheme.

Sunak announced a four-point plan to help protect jobs but warned: "I can’t save every job and I can’t save every business. No Chancellor could."

He added that businesses, and the country as a whole, must face the reality of a ‘more permanent adjustment to the economy’.

UKinbound said the ‘desperate’ need of inbound tourism business ‘has again been overlooked’.

The core pillar of the new measures is a job support scheme – starting in November and running for six months – giving businesses the option of keeping employees effectively on a part-time basis, rather than making them redundant.

Staff must work a third of their usual hours, paid by the employer.

For the time they are not working, the government will pay a third of their usual pay, and the employer will pay another third, leaving the final third unpaid.

It means workers will get 77% of their usual pay.

Sunak said it will protect ‘viable jobs’ and offer respite for sectors where there is ‘supressed demand during the difficult winter months’.

Asked later what he regarded as a ‘viable’ job, Sunak said ‘it was not for me to say’.

Addressing the Commons, the Chancellor said the scheme will be targeted at businesses that need it most, including all small and medium-sized firms.

Larger companies will be eligible if turnover has fallen.

He said firms can claim the jobs support scheme and the jobs retention bonus.

The Chancellor also announced a ‘pay as you grow’ scheme to help companies repay state-backed business loans.

Loans can be extended from six to 10 years, almost halving repayments.

Interest-only payments can be made, and firms in ‘real trouble’ can suspend their liabilities, he said.

On the decision to extend the VAT reduction, he said: "The final step I’m taking today will support two of the most affected sectors, hospitality and tourism.

"On current plans, their VAT rates will increase from 5% back to the standard rate of 20% on January 13.

"So to support more than 150,000 businesses and help protect 2.4 million jobs through the winter, I’m announcing today that we are cancelling the planned increase and will keep the lower 5% VAT rate until March 31 next year."

The absence of any further specific support for travel and tourism will disappoint, but probably not surprise the industry. 

UKinbound chief executive Joss Croft said "Undoubtedly, today’s announcement will help many tourism businesses and safeguard jobs, which of course is incredibly welcome.

"However the desperate needs of British inbound tourism businesses, who bring international visitors to the UK and support tens of thousands of viable jobs, have once again been overlooked. 

"These businesses have received no visitors since March, can’t pivot to capture domestic business, continue to be excluded from rate relief and grants and, with so few international visitors, won’t benefit from the extension of the VAT reduction.

"These businesses are sustainable and will be profitable again, once international tourists can return and are no longer impeded by measures such as quarantine.

"Whilst we welcome these measures, especially the Jobs Support Scheme, the Government’s one size fits all approach doesn’t work and is having a detrimental effect on these previously profitable companies, which generated £28 billion to the UK economy in 2019."

Chair of the Short Term Accommodation Association (STAA), Merilee Karr, said more targeted help was needed for the sector.

"Whilst the sector experienced a good August, September has seen a dampening of demand that we can expect to continue throughout Autumn," she said. "Those hospitality businesses that have been impacted by lockdown and quarantine restrictions, especially during spring when millions of bookings were lost, will need more help. 

"The Chancellor needs to consider the potential for further targeted business rates relief and/or grants for companies in the sector, which must include short-term rental companies, to ensure that they are able to prepare for a longer recovery period and to welcome visitors for many years to come."