finance

Sunak's mini-budget: Reaction from business in Scotland



Business organisations welcomed Rishi Sunak’s package of measures in his summer “mini budget” – particularly the temporary VAT cut targeted at the food and hospitality industries.

They also praised cash incentives to encourage firms to keep on furloughed workers and the Kickstart scheme to help them take on young workers at risk of long term unemployment.

But some criticised the Chancellor for again omitting measures to support directors of small businesses who count on dividends for earnings and have yet to receive support.

And one tax expert pointed out that the cut in VAT on food might not be as simple to implement as first appears.

Malcolm Cannon, national director of IoD Scotland, said: “ The Chancellor’s statement presented positive news for many. Scotland’s tourism sector will particularly welcome the news, with a 75% VAT reduction most welcome as they prepare to throw open their doors next week.

“While the Chancellor rejected calls to extend the furlough scheme beyond October, incentives to businesses which are able to retain staff will help, although for some firms that have really struggled to make it this far January may seem a long way off.  We will continue to fight for our members, especially those who have fallen through the funding scheme gaps – namely directors of small businesses which have not received any income support throughout this period.”

Scottish Licensed Trade Association managing director Colin Wilkinson said: “July 15 will be the kick-start for the majority of the industry in Scotland but we must remember it is estimated that nearly one-third of premises will either not be able to open at all or will not be viable even if they can open.

“While we particularly welcome the reduction in VAT from 20% to 5% and agree that much of the Chancellor’s rescue package for the UK economy is good news, from the hospitality sector’s perspective Rishi Sunak needed to do more to help rebuild the industry.

“However, this substantial but temporary reduction in VAT for accommodation and food gives the sector a much-need boost. Experience from Ireland shows that when VAT rates are lowered tax revenue to the Government increase, and research undertaken in the UK indicates this would be reciprocated.”

Andrew McRae, FSB’s Scotland policy chair said: “It should be noted that there are many small businesses that were not supported by the Chancellor’s package – with company directors once again overlooked. Given these businesses have had little to no support in over 100 days, FSB is hoping that support can be provided in the near future.

“The jobs scheme will hopefully prevent a lost generation of young people, but for it to work in local economies, it must focus on the small employers who employ around one million people in Scotland. We can’t have a situation where local businesses are behind a queue of big corporates because of a target-driven approach.

“Reducing VAT in sectors hit especially hard by the pandemic is an astute move. It will make everyday activities like grabbing a coffee and cake more affordable for budget conscious consumers – while making the country a more attractive destination for tourists home and abroad.”

Stewart Mathieson, tax partner at EY in Scotland, said of the VAT cut: “Although this is a targeted response, implementation will be more complicated than it appears. There is a body of case law around when is food not food but catering, and already there is confusion among retail outlets over the categorisation of certain product offerings that contain both hot food and alcohol, for example the pie and a pint offer.

“The reduction in VAT will not apply to any alcoholic beverage, so outlets offering alcohol and food combinations will need to carry out product reviews immediately to be ready in time for next Wednesday.

“Other businesses may be unwittingly caught by this – shops that have a restaurant; hospitals that provide catering and all businesses will need to determine if both purchases and supplies fall within the new reduced rate or not.”

Fraser Sime, regional director at Bank of Scotland Commercial Banking, said: “Today’s announcement of a VAT reduction for tourism and hospitality will provide a much-needed boost for operators as they begin to reopen, as will the new ‘Eat Out to Help Out’ scheme designed to stimulate demand.

“Pubs, hotels, cafes and restaurants across Scotland are working hard to tempt their customers back into spending mode, so these measures will be received as helpful in getting firms on the road to recovery that bit more quickly.”

Martin Bell, tax partner at accountancy and business advisory firm BDO in Scotland, said: “The ‘Kickstart’ placement scheme is an interesting way to rethink entry level roles by subsidising work placements for those who are 16-24 in a very challenging jobs market.

“What will be particularly welcome is how focussed Mr Sunak’s policies are – namely targeting individuals and business sectors most impacted by Covid-19.

“The VAT cut is a focussed change, which should act as a significant boost to the hospitability and entertainment sectors, but businesses more generally still need time to pay their VAT bills, with the deferral having ended on 30th June and the automatic VAT deferral due to be paid early in 2021.  Help for hospitality is welcome, but cash flow will be an increasing pressure on business, especially as other tax deferrals are lifted and grants end.”

Mark Tennant, chairman of Scottish Land & Estates, said: “The huge reduction in visitors has had a massive impact on the sector and if a greater recovery can be fostered for the rest of 2020, the real hope is that rural Scotland will be far better placed to move forward in 2021 and beyond. Both the VAT cut and the Eat Out To Help Out scheme can encourage people to sample more of Scotland’s outstanding hospitality, food and drink.

“We’re pleased also to see the new job retention bonus for employers who bring back furloughed staff. This will be aided by the kickstart scheme for 16 to 24-year-olds. All too often, young people are compelled to leave rural Scotland to access training or jobs this has a real effect on these communities.”

Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: “The £800 million additional funding received through the Barnett formula is a welcome boost to support Scottish business recovery. It is now up to the Scottish Government to work with business and target support where it is most needed – protecting jobs and ensuring young people can access training and support.

“The Kickstart scheme is a practical step in the recovery that will protect existing jobs while creating new ones. In addition, the Jobs Retention Bonus scheme will act as a bridge to support the thousands of jobs that have been maintained through the furlough scheme.

“SCC called for targeted VAT reductions for the hospitality and tourism industry and the Chancellor has listened. These reductions are welcome as hard-pressed businesses in the tourism and hospitality sectors are in desperate need of such lifeline support.

“However, the Chancellor missed an opportunity today to reduce VAT for the retail sector. This move would have encouraged more shoppers to return to our high streets and breathe life back into our local economies.’’

Kat Brogan, managing director of Mercat Tours in Edinburgh, said: “The government needs to do all it can do to revive the economy and the VAT reduction is a good place to start. It will help us support our team and invest in our future.”

Stephen Gow, general manager of The Chester Hotel in Aberdeen and The Chester Residence in Edinburgh, said: “This is a welcome short term boost for the industry as well as for our guests and diners. The VAT cut from 20% to 5% for the next six months on food and accommodation will encourage more people to eat out and to travel and will kick start the sector in Scotland as we begin to emerge from this unprecedented period of closure.

“The £10 per person ‘eat out to help out’ discount for those who dine out from Mondays to Wednesdays in August is also an innovative measure and we look forward to finding out more about how this will operate.”



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