Cast your minds back to the pandemic, it was a time, would you believe it now, where Rishi Sunak was a very popular Chancellor. This was a period, where at the time, Sunak had introduced “eat out to help out” to public praise for wanting to stimulate the economy after the end of the first Covid lockdown. Even with doubt of its effectiveness in those two summer months alongside the potential contribution towards rise in Covid infections afterwards, it remains in the minds of people as a move to get things to bounce back.

Less talked about from that time is the VAT cut on hospitality, tourism and other attractions, from the standard rate of 20% to the reduced rate of 5%; first from July 2020, to January 2021, then to end of March then up to end of September. Then Rishi created a special rate of 12.5% up until end of March 2022. Much like the chopping and changing of corporation tax, this is emblematic of the previous Conservative government not giving long term certainty on what they intended to do with tax. I would suspect* that this VAT cut, as opposed to many single type of product VAT reclassifications like with sanitary products and e-books, would have had an effect on price cuts to consumers and demand stimulation, owing to the not insignificant share of public consumption going towards the industries benefiting from the cut in VAT, and the fact it would last for nearly two years.

Then you must wonder what further analysis the Culture, Media and Sport Committee considered when they released their report of May this year on Grassroot Music Venues (GMVs), calling for a temporary VAT cut… only on GMVs, which are venues with capacity below 1000 people.  The evidence, in fact, is simply the assertion that a VAT reduction would have saved events cancelled last year, and that the Covid era VAT cut meant that there were 100 more shows coming out of the pandemic, and that success can therefore be targeted to GMVs.

Within the statements given from industry we do however see a recurring theme, that being the VAT threshold distorting decisions on whether to go through events at GMVs. The problem of UK’s high VAT registration threshold, now at a turnover of £90,000 per year, means that small businesses hold off on taking on additional sales, events etc. to avoid needing to be VAT registered. Dan Neidle, Institute for Fiscal Studies and Adam Smith Institute have all at various points, called for action on lowering the VAT threshold, to alleviate these distortions in business decision making. Yet, the evidence provided to the committee, and the subsequent recommendations, have been to just do a targeted and temporary VAT cut.

This is a policy, if not challenged, may well appear in future Liberal Democrat campaigns following Autumn Conference this year, as the motion A Fair Deal for Musicians reiterates the Committee recommendations without challenge. And where the party already argues for zero-rating on VAT for children’s toothpaste and on HFP sunscreen on the basis of consumer savings, which we have plenty of evidence is misguided, the Liberal Democrats would simultaneously be arguing for a VAT cut on GMVs for no consumer saving and only to increase GMV profits, without considering long term viability and demand for them. These two positions are irreconcilable, and where it would be preferable for Liberal Democrats to think holistically for VAT reform, the first step is undoubtedly calling on Conference to not adopt another VAT cut policy.

That is why I have put in a request for a separate vote on the policy to call for a targeted VAT cut, and would hope that come the afternoon on Monday 16th September, Liberal Democrats reject those lines, and vote through an otherwise excellent motion on supporting the music sector both via education and across the country.

* Note, my guess is based on the fact the IMF paper on VAT passthrough suggests we notice a cut at around 10% of total national consumption, and the value of consumer spending of restaurants and hotels alone in 2021 was ~£118 billion and total household consumption was ~£1,323 billion, so including other attractions, we’d be around the 10% mark of consumption for sizeable passthrough. If there are papers on the passthrough from then, I’d be glad if you did share.

* Brandon Masih is a Liberal Democrat activist in Reading, and is a Board Member of Liberal Reform.