Chancellor’s VAT cut: What does it mean for the Highland economy?

Visitors at Sligachan, Isle of Skye

A VAT cut to help kick start the hospitality industry was among the headline announcements made yesterday in chancellor Rishi Sunak’s summer statement.

But what might the measures mean for the Highland economy?

What has the chancellor announced?

As part of a £30 billion stimulus package Rishi Sunak announced that VAT will be cut from 20 per cent to five per cent on food, accommodation and tourist attractions.

The cut will come into force next Wednesday (15th July) – when many businesses will re-open their doors.

Eilean Donan Castle: A major attraction and important employer

It will apply for six months and will cover restaurants, pubs, cafes, hotels and B&Bs.

It is expected to also cover self-catering establishments and visitor destinations such as castles – though more details on sectors like marine tourism have yet to be confirmed.

Will it save jobs?

The Highlands is heavily reliant on hospitality and tourism – a sector among the worst affected by Covid-19.

Per head of population the Highlands and Islands has the highest number of furloughed workers in Scotland.

Tourism brings visitors and money to the Highlands

Since the pandemic almost 35,000 people – nearly 30 per cent of the region’s workforce – have been reliant on the Government to subsidise up to 80 per cent of their wages.

The furlough scheme runs out in October, and while the chancellor admitted that not every job will be saved after that, it is hoped measures to encourage people to spend, travel and go out will go some way to protecting livelihoods.

A 50 per cent meal discount – offering customers up to £10 a head off when eating out in cafés, pubs and restaurants from Monday to Wednesday throughout August – is also being introduced to encourage trade.

In Scotland there have been calls to roll out that scheme early, so that it includes the traditionally busy late July school holiday period.

When furlough runs out are there any other protections for workers?

As well as the VAT cut this week’s measures also include a “job retention bonus”. Companies will be paid £1,000 for every staff member kept on for at least three months after the furlough scheme ends in October.

What do the industry bodies say?

A spokesperson for Skye Connect, destination management organisation for Skye, said: “The cut in VAT from 20 per cent to 5 per cent for the hospitality industry is great news as we prepare to open our businesses after lockdown.

“The UK has had the highest rate of VAT in Europe and this has always put our industry at a competitive disadvantage.

“Our tourism industry is facing the shortest season on record before we are once more into the long winter with minimal income.

“The VAT reduction will help us retain jobs once the furlough scheme ends.

“We also welcome the Government’s ‘Eat out to help out’ initiative and support the Scottish Tourism Alliance’s proposal for the scheme to be brought forward to July in Scotland so that families planning a staycation during the school holidays can take advantage of the Government backed discount.

“Investing in our sector during this sharp economic downturn is a bold and welcome move that will save many thousands of jobs.”

And what about the politicians?

Kate Forbes, Scottish Finance Secretary, said the measures didn’t go far enough, and had called for a stimulus package of £80 million.

She said “While there are elements in this announcement to be welcomed, in particular the measures on VAT for tourism and hospitality, overall this package is a huge opportunity missed. It falls well short of delivering what is needed to boost the economy and protect jobs.

Kate Forbes: “Opportunity missed”

“There is no new capital spend, no extension to the furlough scheme for hard-hit sectors and no further support for households in financial difficulty. A half price meal out does not help those struggling to put food on the table.”

Ms Forbes wants the Scottish Government to be given additional borrowing powers to help shape Scotland’s economic response to the pandemic – a call that was supported this week by the leadership of Highland Council.

Shadow Scottish Finance Secretary Donald Cameron said: “Given that we have the added challenge of a late re-opening of the sector in Scotland, it is very important that we get on the front foot and make it clear that responsible visitors will receive a warm Highland welcome when they arrive here, and in so doing help the thousands of people here who rely on tourism for their livelihoods.”