Closing post
Time to wrap up…
Rachel Reeves will cut VAT to 5% on summer attractions such as theme parks and soft play centres during the school holidays as she aims to ease the impact of the war in Iran on cash-strapped households.
The chancellor told MPs on Thursday she would also raise more tax from global oil firms operating in the UK to help meet the costs of her plans.
Cutting VAT from 20% to 5% during the summer on tickets for attractions and children’s meals is part of a scheme that Reeves is calling “Great British summer savings”. It will also include free bus rides for under-16s in England during August.
Companies in the UK’s dominant services sector have reported one of the sharpest declines in business activity in a decade, according to a closely watched index.
Businesses are grappling with a “perfect storm” of domestic political uncertainty around Keir Starmer’s leadership as prime minister and the growing impact of the Iran war, leading to soaring costs, supply shortages and job cuts, the report said.
The S&P Global purchasing managers’ index (PMI), which surveys hundreds of companies across the UK each month, said activity among firms working in the services sector was the weakest since January 2021 and the lowest since July 2016 if the Covid pandemic period was excluded.
The airline easyJet has said its summer holiday bookings are lagging behind last year’s, as the Middle East conflict weighs on consumer confidence and passengers appear to be waiting later to book trips.
The carrier said it had to spend an unexpected extra £25m on jet fuel in March after the start of the US-Israel war on Iran.
However, easyJet said it was not experiencing any disruption to fuel supplies, adding that it had its usual visibility of supplies over a rolling four-week period. It said it did not expect to cancel any further flights this summer despite the warning from Ryanair’s Michael O’Leary in April that the UK was the most vulnerable country in Europe to potential jet fuel shortages should the strait of Hormuz remain closed.
Key events
Turning back to the UK, the hospitality and entertainment industry is broadly welcoming a temporary cut to VAT this summer.
Fiona Eastwood, chief executive of Merlin Entertainments, the group which runs Alton Towers and Legoland Windsor, said it was “great news” for the UK’s visitor economy and for families planning summer trips.
As the season gets under way, this timely move from the government will make it easier for people to get out, explore and create memorable moments together at destinations across the country.
“Merlin will be applying this VAT cut to both admission tickets and children’s meals, adding more value to days out and short breaks at our 20 UK attractions.”
Meanwhile Odeon Cinemas Group managing director Mark Way said:
As the UK’s largest cinema operator, 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.”
However, tax professionals are warning that the VAT cut could lead to complications for businesses and confusion for buyers.
Emma Rawson, director of public policy at the Association of Taxation Technicians, said:
While cuts to VAT on certain products and services may be welcome news for consumers, it risks adding further complexity to an already complicated system. Tinkering with the rules on what is covered by VAT and at what rates has led to an area which is ripe for reform.
There is also no guarantee that cuts to VAT are passed on to consumers in the form of reduced prices at the checkout, so buyers should beware.”
Tax advisory firm MHA warned that the move did not come without “significant challenges” for companies.
MHA partner Sue Rathmell said:
It will be time consuming and costly for businesses to recalculate their prices and amend their menus, displays and websites.
Where a retailer has already received payment for tickets supplied for the period June 25 to September 1 2026, the Government expects retailers to refund the additional VAT to their customer.
This will potentially be a lengthy exercise for retail businesses who will have to work quickly to get their systems set up for the change. Undoubtedly businesses will be relying on the VAT reduction bringing in a whole lot more customers to offset their extra costs.”
US stocks fall and oil rises as US-Iran tensions continue
The US stock market has opened lower today, with the blue chip S&P 500 index dropped 0.5%. The tech heavy Nasdaq is also down 0.5%.
Meanwhile Brent crude, the international benchmark for oil, is up 3.7% today to $108.94 a barrel. It follows a report from Reuters that Iran plans to keep its uranium, in a potential setback for any peacedeal.
Jaguar Land Rover and Stellantis to work together in the US
Jasper Jolly
Jaguar Land Rover and Stellantis have said they will work together in the US, in a move that could offer the British carmaker a route to American manufacturing for the first time.
Stellantis, one of the world’s largest carmakers, owns brands ranging from Peugeot and Citroën to Vauxhall and Fiat, as well as Jeep, long a rival to Land Rover. However, the company has said it is looking at forming partnerships, which offer a way for it to use spare factory capacity.
JLR, Britain’s biggest automotive employer, has its eye on potential growth in the US, the world’s wealthiest car market, and senior executives have said they are considering manufacturing there. A deal for Stellantis to manufacture cars for JLR could offer a route around Donald Trump’s tariffs of 10% on most car exports from the UK.
The carmakers said in an announcement that they would “explore opportunities to collaborate on product development in the United States” and try to create “synergies across product and technology development”.
Any deal would be seen as a response to the surge in exports of Chinese cars, which have put traditional Western carmakers under enormous pressure.
JLR could potentially share designs for electric cars with some of Stellantis’s premium brands, although the company gave no details.
Antonio Filosa, chief executive of Stellantis, said:
By working with partners to explore synergies in areas such as product and technology development, we can create meaningful benefits for both sides while remaining focused on delivering the products and experiences our customers love.
PB Balaji, JLR’s chief executive, said:
As we continue to evolve JLR for the future, collaboration will play an important role in unlocking new opportunities. Working with Stellantis allows us to explore complementary capabilities in product and technology development that support our long‑term growth plans for the US market.
JP Morgan boss says firm will hire fewer bankers due to AI
Elsewhere today, Jamie Dimon, chief executive of JPMorgan Chase & Co, said the bank is likely to hire more AI specialists and fewer bankers in the future.
In an interview with Bloomberg, the billionaire said that he believed AI would “reduce our jobs down the road”.
He said:
There will be all different types of jobs, and I think we will be hiring more AI people and fewer bankers in certain categories, and it will make them more productive.
His comments came after Bill Winters, the boss of the accountant Standard Chartered, said the bank would use AI to replace “lower-value human capital”.
Dimon stold Bloomberg that Winters was a friend and “it was an inartful way to say something”.
Cost of living measures help, but government will need to be bolder, trade unions say
The new package of cost of living help is welcome, but the government will need to do more, TUC General Secretary Paul Nowak has said.
Any practical steps to help families with the cost-of-living crisis are a good thing.
Unions have long campaigned for upgrading critical industries like chemicals and ceramics and increasing mileage rates for workers. These measures will make a real difference to people up and down the country.
But we’ve barely begun to experience the economic fallout of the Iran war – and the threat to living standards is going to grow as the war drags on.
With the new energy price cap set to be announced next week, the government will need to be bolder to shield workers and households from Trump’s illegal war.”
Tina McKenzie, chair of the Federation of Small Businesses, said the VAT cut was good news for restaurants, pubs, soft plays and attractions that have “spent years fighting rising costs and shrinking margins”.
With 44 per cent of small hospitality firms based on or near the high street, a VAT cut should help put bums on seats and bring life into our town centres this summer.
With families switching from international travel to domestic travel this summer, they’ll be more people out and about on our local high streets. For many small firms, these next few months matter enormously after a bruising period of rising costs and squeezed consumer spending. Families will make extra purchases, such as drinks and merchandise, which is likely to be the biggest help to small businesses’ bottom lines.
… A strong summer could be the difference between staying afloat and shutting up shop for some businesses.
The cut on VAT for summer attractions – which the government is calling its “Great British Summer Savings scheme” – comes alongside the news that children aged five to 15 in England will be able to travel free on local bus services in August.
Overall the scheme is estimated to cost about £300m.
Kate Nicholls, chair of the industry body UKHospitality, says:
It’s good to see the government recognise the importance of a lower rate of VAT for hospitality as the quickest and simplest way to lower prices and boost consumer confidence.
A 5% rate of VAT for children’s meals and tickets is a good step to help families enjoy a great British break this summer.
If there is scope to further support families by including accommodation in this reduced rate, I would encourage the Chancellor to do so to help tackle one of the biggest costs of a family holiday.
This should now be viewed by government as a downpayment on a wider shift to a lower VAT rate for the entire hospitality sector, to bring us in line with Europe. Our biggest competitors benefit from VAT rates that average around 10%, and can be as low as 7%, and the UK is a clear outlier.
As the government has recognised today, VAT is the single biggest lever it can pull to lower prices, tackle inflation, drive demand, boost spending, generate growth and create new jobs. I would urge it to be bold and cut VAT for the entire hospitality sector.”
London already operates its own 5–15-year-old Zip Card scheme, which provides children with free travel across London.
Reeves has also confirmed that the government will freeze tariffs on more than 100 different foods sold in supermarkets.
She said she is clear she expects supermarkets to pass these savings on “in full” to their customers.
VAT cut on attractions like theme parks, zoos and children’s cinema tickets, to be cut over summer, Reeves says
Reeves announces a temporary cut to VAT on summer attractions from 20% to 5%.
This will apply to ticket prices for adults and children, covering attractions such as fairs, theme parks, zoos and museums, she says.
It will include children’s tickets for cinemas, concerts, soft play and the theatre, and it will cut the cost of children’s meals in restaurants and cafes from 20% VAT to 5%, she says.
The changes will apply across the UK from the start of the Scottish school holidays on the 25th June, and run until the end of school holidays in England, Wales and Northern Ireland on the 1st September.
According to the Treasury, if these businesses pass on the full VAT savings to their customers, then for a family of two adults and two children it would mean:
-
£20 off the family’s tickets to a theme park
-
£2 off entry to soft play
-
£6 off the family’s tickets to a farm attraction
-
£17 off the family’s tickets to a wildlife park
-
£1.50 off the children’s tickets to the cinema
-
£9 off the family’s tickets to the circus
-
£2 off the children’s meals on a lunch out
-
£11 off the family’s tickets to the aquarium
Reeves says she will bring forward changes to taxation of foreign branch profits, in a move that she says will raise hundreds of millions of pounds a year.
Currently, some oil and gas groups that operate overseas through foreign branches have structured their tax affairs in a way which ensures they pay little or no corporation tax on their UK energy trading profits. Today we are putting an end to that practice.
Reeves says she will also establish a £350m Critical Chemicals Resilience Fund to support “strategically important producers”, as well as a £120m fund to support the ceramics industry, designed to help them increase efficiency and drive down energy costs.
The conflict in the Middle East poses a significant challenge to the world’s economy, including the UK’s, she says.
She notes that Ofgem will confirm the level of the energy price cap that will apply from July.
I know that any increase will be felt by families because of the decision that I made at the Budget last year to cut £150 from energy bills. We have lessened the impact of rising prices, and current external forecasts suggest that the cap from July will be at a similar level to the cap in April last year.
We stand ready to act if market conditions worsen significantly later this year, and I have been leading cross-government contingency work on design of potential, future targeted and temporary support for businesses. Any support will also need to be carefully targeted at firms most exposed to the crisis.
The chancellor, Rachel Reeves, is now addressing parliament. She is expected to outline a package of measures aimed at easing the cost of living.
Oil up 2% amid reports that Iran says uranium should not be sent abroad
Oil prices are rising after reports that Iran’s supreme leader ordered that the country’s enriched uranium should not be sent abroad.
Brent crude, the international benchmark for oil, rose 2% to $107.32 a barrel.
It follows a report from Reuters which cited two unnamed “sennior Iranian sources”.
It comes more than a week after US president Donald Trump said talks with Iran were in their final stages.
EU cuts economic growth forecast amid inflation concerns
The EU has cut its forecast for economic growth this year, amid worries around inflation triggered by war in the Middle East.
The European Commission has now projected that GDP growth in the EU will slow down to 1.1% this year, compared with a previous forecast of 1.4%.
Inflation in the EU is expected to reach 3.1% in 2026, a full percentage point higher than the last forecast, before easing back to 2.4% in 2027.
British factory orders shrink at fastest rate since 2020, CBI says
Some more gloomy figures this morning – British factory order books were at their weakest in May since September 2020, according to a survey by the Confederation of British Industry.
Its monthly balance of total new orders slid to -41 in May from -38 in April.
Cameron Martin, senior economist at the CBI, said:
Against an increasingly uncertain global backdrop, the conflict in the Middle East is feeding through to higher energy costs and renewed supply chain disruption, adding another layer of challenges for manufacturers, who are already grappling with weak demand.
Business activity across the eurozone also shrank in May, at its fastest pace in two and a half years.
The PMI index fell to 47.5 in May from 48.7 in April, S&P Global found, once again driven by a slump in the services sector.
Williamson said the data showed the eurozone economy taking an “increasingly severe toll from the war in the Middle East”.
Job losses are also starting to become worryingly widespread as business confidence in any swift turnaround in the adverse economic climate fades further.
The service sector is being hit especially hard by the surge in the cost of living created by the war, notably via the demandsapping impact of higher energy prices. While there has been some support to manufacturing from precautionary stock building, this boost is starting to fade, with demand for both goods and services now in decline.
The region’s supply shock from the war is also intensifying, as indicated by increasingly widespread supply chain delays. Supply shortages threaten not only to constrain growth in the coming months but also have the potential to add further upward pressure to inflation.
The rise in the survey’s price gauges already hints at inflation running close to 4% in the coming months which, combined with the growing signs of the region slipping into an economic downturn, creates a deepening dilemma for policymakers.”
Leave a comment