Summer VAT cut won’t save Britain’s struggling pubs and restaurants

The Government’s much-publicised Great British Summer Savings scheme promises cheaper days out and lower-cost children’s meals this summer, but many hospitality operators say the reality falls far short of the headlines. From 25 June, VAT on qualifying children’s meals and selected family attractions will fall from 20% to 5%, but with adult meals excluded and many low-income families still unable to afford eating out, business owners argue the measure is little more than a symbolic gesture. At a time when pubs, cafés and restaurants are battling soaring wage costs, higher National Insurance contributions, rising energy bills and weak consumer spending, critics say the sector needs meaningful support, not what amounts to a discount worth little more than a pound on a child’s meal.

Great British Summer Savings: small savings for families and a drop on the ocean for struggling hospitality.

Photo by Brian J. Tromp on Unsplash

For the hospitality industry, the effect of the Great British Summer Savings that come into force from 25th June, is likely to be symbolic rather than transformational and much more modest than the headline announcement suggested. For the most cash strapped families it’s a slap in the face.

The Chancellor announced a few weeks ago that the Great British Summer Savings measure would reduce VAT from 20% to 5% on qualifying children’s meals sold from dedicated children’s menus for consumption on the premises between 25 June and 1 September 2026. There’s also reduced VAT on cinemas, theme parks, zoos, museums and other attractions. Restaurants, cafés and similar establishments are covered. Takeaways are excluded. On the face of it, it sounds like a nice thing to do for parents, but in reality, it’s too small beer to make a difference for those most in need of help.

Increased family footfall

The government’s primary objective is to encourage families to eat out more often during the school summer holidays. Lower meal costs, combined with reduced VAT on cinemas etc could increase overall family leisure spending. A family making a day out of a zoo, cinema or theme park is more likely to add a restaurant visit to the trip. The lowest income families as always will miss out on the benefits because they still won’t be able to afford to partake.

For family-oriented chains such as Harvester, Brewers Fayre, Hungry Horse, Beefeater, Pizza Hut Restaurants, Frankie & Benny’s and independent family restaurants, this could generate a noticeable increase in customer numbers during the summer holiday period, but it will do very little to support the ailing hospitality sector.

There’s a potential revenue uplift of between 3% and 8% for family-focused operators

Based on previous VAT reductions in hospitality and general research, businesses serving large numbers of families could see summer sales increase by several percentage points if they pass most of the saving on to customers.

The biggest beneficiaries are likely to be:

• Family pub restaurants

• Casual dining chains

• Leisure destination restaurants

• Seaside hospitality businesses

• Tourist attractions with food outlets

The benefit will be smaller for fine dining restaurants and venues with little children’s trade.

A key question is whether businesses pass on the full VAT saving.

A £10 children’s meal currently includes £1.67 VAT at 20%.

At 5% VAT, the VAT element falls to approximately £0.48.

That creates around £1.19 per meal of potential benefit.

Businesses can:

• Reduce prices fully in the hope of stimulating demand.

• Split the benefit between customers and themselves.

• Retain most of the saving to offset rising wage, National Insurance and energy costs.

Many operators may choose a combination of all three. Children’s meals are often already sold on very low margins, meaning operators may use some of the relief simply to improve profitability.

However, there’s limited impact on overall sector profitability

For the hospitality sector the kicker is that the relief only applies to children’s meals, and not adult meals. Many families will still not be able to afford meals out, never mind meals out more often. Children can’t go out without their adults, and the overall cost reduction is likely to be too small to persuade families to leave home for.

For most restaurants, children’s menu sales represent a relatively small proportion of turnover. Therefore, the measure could help family-focused venues but won’t touch the sides when it comes to solving the hospitality sector’s wider cost pressures. It won’t materially alter the economics of many pubs, bars and restaurants. Top chefs and business owners have already pleaded for a broader VAT reduction across hospitality to save the sector. Several restaurateurs have described the summer savings measure as symbolic rather than transformational.

Implementing the savings doesn’t come without costs. Some businesses may face:

• Costs of reprogramming electronic point of sale machines

• Accounting complexity

• Staff training issues

• Questions over what qualifies as a “children’s meal” (we saw this during covid)

HMRC guidance makes clear that only meals marketed, priced and presented as children’s meals qualify. Smaller portions of adult meals do not automatically qualify. That in itself may exclude many small and micro independent food outlets that don’t have specific menus for children.

Impact on the wider economy

The Treasury hopes the measure will:

• Boost hospitality.

• Increase visitor numbers to attractions.

• Support tourism.

• Encourage spending during the school holidays.

• Help families facing cost-of-living pressures.

The package is estimated to cost around £300 million. There are around 176,000 hospitality venues in the UK and each of those needs around £30,000 of margin back every year to survive. That a total of around £5 billion. Some families may welcome this but the hospitality sector could be forgiven for calling it a gimmick.

The measure may be a small help for some families but for hospitality it’s unlikely to be the boost the Government would like to see.