Why Reeves’s plan to save you money this summer risks unravelling before it even begins

Chancellor Rachel Reeves’s £1.8bn package to help families with the cost of living crunch over the summer is at risk of unravelling after economists warned it is unlikely to help consumers.

Food industry leaders have also warned against any attempt to cut tariffs on imported goods – such as biscuits, chocolate and dried fruit – amid fears it may harm British businesses.

The Chancellor last week unveiled her “Great British Summer Savings” scheme – a series of policies including a cut to VAT for family attractions and on children’s meals in cafes and restaurants over the long school holidays.

Under the plans, theme parks, zoos and museums, as well as kid’s meals in restaurants, will have their VAT cut from 20 per cent to 5 per cent from 25 June to 1 September in a bid to help ease the cost of family days out.

But HMRC guidance on the plans states that the Government merely “expects” businesses to pass on the cut to consumers – and Treasury officials have admitted they have no means to force firms to reflect the cut in lower prices.

Meanwhile, Robert Slater, a tax specialist at business advisory firm Blick Rothenberg, has warned that the VAT cut will have little to no impact on consumer prices.

“Dropping VAT has never been a real benefit to the consumer, it just increases the margins for businesses,” he told The i Paper.

‘It’s not actually doing anything for the consumer’

Slater pointed to previous attempts by ministers to slash VAT in a bid to help consumers and their wallets. This includes former Labour chancellor Alistair Darling’s cut to VAT after the credit crunch, and Rishi Sunak’s ‘Eat Out to Help Out’ scheme during the Covid pandemic.

“It has never been much use for the consumer,” he said.

“She [Reeves] gets a short term political win, she gets to be seen to be doing something when fundamentally it is not actually doing anything for the consumer.”

But a number of entertainment giants have committed to passing the savings on.

Merlin Entertainment – which owns the likes of Legoland, Alton Towers and Thorpe Park – said it would apply “this VAT cut to both admission tickets and children’s meals” at its attractions.

Odeon Cinema Groups also welcomed the plans. Mark Way, President AMC Europe & Managing Director, said: “We believe these measures will continue to help drive strong demand and we’re excited that our guests will be able to enjoy the big screen for less over this blockbuster summer.”

The Chancellor also suggested the Government would look at cutting tariffs on more than 100 food products being imported into the UK, such as biscuits, chocolate and dried fruit, to ease costs at the till.

Tariff cuts ‘land poorly’ with food industry

But The i Paper understands the decision has gone down poorly within the food industry and is likely to be heavily opposed, meaning consumers are unlikely to see any significant drops in prices.

The Food and Drink Federation warned that the policy risks undercutting UK businesses at a time when they are being hit by extra costs, such as rises to national insurance contributions and the minimum wage.

Cutting tariffs on imported products can make prices cheaper at the tills but risks undercutting UK producers who make similar products here.

Karen Betts, Chief Executive of the FDF, said: “Removing tariffs on products that businesses make here in the UK undermines rather than supports those businesses and the people they employ.

“Instead, the Government should remove tariffs on ingredients and address the root causes of food inflation, including by rigorously prioritising burdensome regulation. Otherwise, this risks benefiting overseas manufacturers at the expense of our domestic food system.”

Reeves’s cost of living package comes as ministers are growing increasingly anxious over the continued blockade of the Strait of Hormuz and the impact it will have on the economy.

Last week, Foreign Secretary Yvette Cooper warned the world is “sleepwalking into a global food crisis” due to the ongoing stalemate between the US and Iran.

The Treasury highlighted commitments to pass on the VAT cut from the bigger operators of attractions, such as Merlin Entertainments.

“We’re calling on businesses to do the right thing and pass on the full VAT savings to hard-working families so they can enjoy life’s little treats for less this summer,” a spokesman added.

المصدر: iNews