Why a Lower VAT will Encourage Consumers to Spend More

COVID-19 has brought about unprecedented happenings, none more so than the extraordinary funding schemes implemented by the Government.

Whilst the furlough and business grant schemes were the starting point, backing for the hospitality sector came later.

Furthermore, this funding has been aimed firmly at increasing much needed consumer spend in this area.

Instead of funding the businesses directly, VAT cuts and even a subsidised meal scheme have been specifically designed to increase footfall. 


On 15 July 2020, the Government implemented a policy to temporarily lower VAT in the hospitality industry from 20% to 5%.

Planned until 12 January 2021, this reduction applies to certain supplies of hospitality; hotel and holiday accommodation.

Similarly, the VAT on admission to some attractions has also been reduced.

As a result, it’s hoped that with families wanting entertainment through the summer holidays and beyond, spending will kick in. 


According to a Visa spending report issued in September 2019, spending in the Hotels, Restaurants and Bars category had continued to rise. Whilst spending in most areas declined, spending in this category still saw a 2.7% increase. 

However, this all changed in March 2020.

Hospitality spending is something that cautious consumers consider a luxury. Whatever the reason for an economic dip, when employment is hit, spending on travel, events and eating out will take a dive.


With the hospitality industry arguably being hit the hardest in times of recession, it’s critical that spending continues. For example, incorporating lodging, food and drink service, event planning and recreation, the industry employs huge numbers of people.

Often employing lower paid workers, this industry hit by unemployment will have a massively negative impact on the economy.

In areas which generally attract visitors, higher unemployment locally will hit all local businesses hard.

Consequently, over time, those areas will become run down. As a result, they will become even less desirable to visit and so it becomes a vicious circle. 


If spending within the hospitality sector drops, the ripples in the pond are far reaching.

Offering essential services for travellers everywhere, hospitality is important to individual customers. However, the main impact of lower consumer spending in the industry hits local communities and businesses.

Tourism and hospitality are mutually reliant. For example, if an area of outstanding beauty brings in more tourists, it will boost the local hospitality trade.

Equally, if a hotel offers outstanding service to its guests, the local tourism trade will benefit too.

Local unrelated businesses are also evidently impacted. Any effect, positive or negative, will echo through the community.

After all, businesses everywhere, from a gift shop – to a butcher – to a local craft centre, need passing trade to survive.
To learn more, get in touch with us today. And check our Coventry accounting services to find out how we can help you with your VAT returns, for instance.