Reeves cuts VAT on summer days out to 5% as part of cost of living support | Tax and spending
Rachel Reeves will cut VAT on summer attractions such as theme parks and soft play centers to 5% during the school holidays as she aims to ease the impact of the war in Iran on cash-strapped households.
The Chancellor also told MPs on Thursday he would tax global oil companies operating in the UK more to help cover the costs of his plans.
The cut in VAT on tickets for entertainment and children’s meals in the summer from 20% to 5% is part of a £300 million scheme Reeves calls “Great British summer savings”, which also includes free bus journeys for under-16s in England in August.
The Chancellor said zoos, museums, theme parks and soft play venues will benefit from temporary VAT relief, and this will also apply to children’s theater and cinema tickets and children’s meals eaten in restaurants.
Giving examples of the potential impact of the scheme, the Treasury said £1.50 could be shaved off the cost of a child’s cinema ticket or £17 off a day at a wildlife park for a family if relevant companies passed on VAT savings to their customers.
The temporary tax relief will be available from 25 June, coinciding with the start of the Scottish school holidays, and will continue until 1 September.
Reeves confirmed he was delaying fuel tax increases expected to take effect in September and December as other cost-cutting measures.
The Chancellor also said he would suspend import tariffs on some foods, including chocolate and biscuits, adding: “I expect supermarkets to pass on all of these savings to their customers.”
A more ambitious plan to see supermarkets commit to fixed prices for essential food items in exchange for the government easing regulatory burdens has been rejected by retailers.
Reeves said he would increase the tax-free mileage rate by 10 times for workers who claim back driving expenses, saying the move would benefit “those who need to drive for work, from maintenance workers to plumbers.”
The cost of Britain’s summer savings will be partly covered by changes to the “foreign branch profits” regime to crack down on companies using complex corporate structures to reduce the amount of tax they pay to the UK Treasury.
While the Treasury did not specify which companies were targeted, Reeves suggested that the focus was on the fossil fuel industry.
“We must ensure that those who benefit from rising prices and fluctuations pay their fair share,” he said. “Some oil and gas groups currently operating abroad through foreign subsidiaries have structured their tax affairs so that they pay little or no corporation tax on profits from energy trading in the UK. Today we are ending this practice.”
The Chancellor expects to “raise hundreds of millions of pounds a year” with new tax measures that come into force from September 1. Weeks after the world’s biggest oil companies reported a rise in profits due to the war in Iran, the government is preparing to launch consultations on the plans. Reeves began his statement by underlining the strength of the economy before the Iran conflict took place. He said the latest official figures showed the UK economy was the fastest growing economy in the G7, at 0.6 per cent in the first quarter of the year.
He declined to say how he expected to support families during the coming winter months, when electricity bills are expected to rise sharply, but reiterated his intention to ensure any such scheme would be “targeted and temporary”.
The three-month cap on household gas and electricity prices from July will be set next week and is expected to rise to around £1,850 after falling in April as a result of tax changes in Reeves’ budget.
TUC general secretary Paul Nowak suggested the chancellor should go further to protect families from the effects of rising inflation in the coming months.
“Any practical steps to help families facing a cost-of-living crisis are a good thing, but we are only just beginning to experience the economic effects of the Iran war, and the longer the war drags on, the greater the threat to living standards will be,” he said. “The government will need to be bolder to protect workers and households from Trump’s illegal war.”
Reeves also used his statement to tout some support for industries that have been hit particularly hard by rising energy costs; £350 million was allocated to the “critical chemicals resilience fund” to support what he called “strategically important manufacturers” and £120 million was allocated to the ceramics industry.
Vincent Kiezebrink, a corporation tax researcher at non-profit group Somo, said a crackdown on foreign branch profits could help close a “gap” in Britain’s tax system but wider changes would be needed to avoid “playing this game of whack-a-mole”.
“While it makes perfect sense to close this loophole… there are numerous ways for multinationals to avoid taxes, and where one loophole is closed, another is quickly found,” he said.
Offshore Energies UK, which represents Britain’s North Sea industry, said it was “reviewing what is proposed”.
