Treasury considers temporary VAT cuts to boost consumer spending

Chancellor of the Exchequer Rishi Sunak yesterday announced that the Treasury was considering VAT cuts to encourage consumer spending as the UK lockdown measures are gradually lifted. 

The cuts -  similar to those implemented after the 2008 financial crisis - are hoped to provide an additional boost to the retail and hospitality sectors, which have been locked down since March. 

The government is acting on concerns that the combination of low consumer confidence with social distancing rules will mean the reopening of retail shops this week and hospitality businesses next month will only have a small effect on consumer spending.

Rishi Sunak told the BBC that a decision on the VAT cut will be made when the government can confirm whether or not the easing of lockdown has triggered an uptick in retail sales, but could be crucial to the survival of many hospitality businesses.

He said: “The issue is not so much that they don’t have the cash, because they’ve been saving over the last few months, it’s whether they have the confidence.”

And this, it would seem, rests on several factors, including the two metre social distancing rule and clear guidelines for businesses to operate safely. 

Last week it emerged that the UK's gross domestic product (GDP) fell by 20% last month, and that almost a quarter of those losses could be attributed businesses in the hospitality sector.

Closure (or relocations at an undetermined date) announcements from The Seafood Pub Company, Le Caprice, The Ledbury and Indian Accent in the past seven days are undoubtedly the sign of more to come.