Rachel Reeves announces 'Great British summer savings' scheme

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 £300m scheme that Reeves is calling “Great British summer savings”, which also includes free bus rides for under-16s in England during August.

The chancellor said zoos, museums, theme parks and soft-play venues would benefit from the temporary VAT reduction, which will also apply to children’s theatre and cinema tickets and kids’ meals eaten in restaurants.

Giving examples of the scheme’s potential impact, the Treasury said that if the companies involved passed on the VAT savings to their customers, it could cut £1.50 off the cost of a child’s cinema ticket, or £17 off a family day out at a wildlife park.

The temporary tax cut will be in place from 25 June, to coincide with the start of the Scottish school holidays, and continue until 1 September.

In other cost-cutting measures, Reeves confirmed she was postponing the fuel duty increases that were due to take effect in September and December.

The chancellor also said she would suspend import tariffs on some foods, including chocolate and biscuits, adding: “I expect supermarkets to pass these savings on in full to their customers.”

A more ambitious scheme that would have seen supermarkets commit to fixed prices for staple foods in exchange for the government easing regulatory burdens was rejected by retailers.

Reeves said she would raise by 10p the tax-free mileage rate for workers claiming back the costs of driving, in a move she said would benefit those who needed “to drive for work, from care workers to plumbers”.

The costs of Great British summer savings will be partly met by changes to the “foreign branch profits” regime to crack down on companies that use complex corporate structures to reduce the amount of tax they pay to the UK Treasury.

While the Treasury did not specify which companies were being targeted, Reeves suggested the focus was the fossil fuel industry.

“We must ensure that those who benefit from increased prices and volatility pay their fair share,” she said. “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.”

The chancellor expects to “raise hundreds of millions of pounds a year” through the new tax measures, which will come into force from 1 September. The government is poised to open a consultation on the plans, weeks after the world’s biggest oil companies reported a surge in profits due to the war in Iran. Reeves kicked off her statement by underlining the strength of the economy before the Iran conflict hit. She said the latest official figures showed the UK economy was the fastest growing in the G7 in the first quarter of the year, at 0.6%.

She declined to say how she expected to support families in the upcoming winter, when utility bills are expected to rise sharply, but she restated her intention to ensure any such scheme would be “targeted and temporary”.

The quarterly cap for household gas and electricity prices from July will be set next week and is expected to rise to about £1,850, after falling in April as a result of tax changes introduced at Reeves’s budget.

Paul Nowak, the secretary general of the TUC, suggested the chancellor would have to go further in the coming months to shield families from the effects of rising inflation.

“Any practical steps to help families with the cost of living crisis are a good thing, 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,” he said. “The government will need to be bolder to shield workers and households from Trump’s illegal war.”

Reeves also used her statement to announce some support for industries hit particularly hard by rising energy costs, with £350m set aside for a “critical chemicals resilience fund” to support what she called “strategically important producers”, and £120m for the ceramics sector.

Vincent Kiezebrink, a corporate tax researcher at the non-profit group Somo, said the foreign branch profits crackdown could help to close a “loophole” in the UK’s tax system but wider changes would be required to avoid “playing this game of whack-a-mole”.

“While it makes perfect sense to close this loophole … there is a multitude of ways for multinationals to avoid taxes, and where one loophole closes, another one is quickly found,” he said.

Offshore Energies UK, which represents the UK’s North Sea industry, said it was “reviewing what’s been proposed”.