Sunak’s brilliant Eat Out to Help Out policy shows why raising taxes would strangle the recovery

Visiting my local pub, The Bell, in the village of Wendens Ambo on Bank Holiday Monday – the last day of Rishi Dishi’s Eat Out to Help Out bonanza – was proof enough of how we Brits adore a bargain. The pub garden was packed with families drinking and laughing in the sunshine, eating the most delicious crispy home-made pizzas while children ran around causing the usual mayhem. Even the wasps were out in force.

The atmosphere was, well, rather normal. Which is of course not normal in these strange times. Like us, many of these families were meeting up with friends and relatives for the first time since the end of lockdown. Like us, too, they were newbies to the new etiquette of socially-distanced socialising and didn’t know quite what to expect.

But the owner and landlord of this tiny sixteenth-century pub, Chris Stringer, has done the most brilliant job in converting his grounds to the new normal: building smart new outside toilets, an outdoor bar, two open-sided marquees and increasing the number of tables outside.

And it’s worked a treat. Stringer says he has never been so busy, and has had to hire a second chef and four more part-time bar staff to help out. Since the Chancellor, Rishi Sunak, launched his Eat Out to Help Out discounted meals, he has been serving up to 150 covers a day. On Bank Holiday Monday alone, he served 220 meals – about four times the number on a normal bank holiday.

Stringer’s success at The Bell is but one example of the extraordinary impact of Sunak’s imaginative policy, but there are thousands of similar stories being reported around the country. There’s no question that what looked like a gimmick back in the early summer has proved to be a winner.

According to OpenTable, double the number diners ate out on the first two days of last week compared to the same two days last year. By the end of August, more than 64 million discounted meals have been eaten out courtesy of the Chancellor: that’s nearly one for every man, woman and child in the country.

There have been 87,000 claims made by the restaurants, cafes and pubs taking part in the scheme, which has helped support more than two million jobs in the sector. Some restaurants are extending the half-price policy and underwriting the costs themselves.

Taking part in the eating out started slowly: 10.5 million meals were claimed for in the first week, growing to a total of 35 million meals in the second. By the third week, the number of customers at UK restaurants was 61% higher than the same days last year on average for a Monday to Wednesday.

What was de facto a tax cut for every man and woman in the country, may also have turned out to be an increase in the tax take for the exchequer. For it is not only the revenue which cafes, pubs, restaurants and bars have earned from the extra trade, but the boost to many other businesses associated with individuals and families getting out of their homes again.

The eat-outers have had to fill with petrol to get to the pub or restaurant they are visiting, or they will have bought a train or tube ticket to travel. They may have stopped off at a shop on the way to buy extra groceries or even splashed out on a new shirt or shoes to go out and take advantage of the discounted meals.

As well as the extra revenue via fuel taxes and VAT generated by the going out for a meal, there was a more subtle psychological boost as giving consumers the enticement to get out has lifted moods and shown people that being out and about again is not as scary as they may have feared.

If you add all those extra trimmings together and the tax that will have been earned on them – the fuel duty, the alcohol tax and VAT – the government may even have made profit on the £500 million allocated to the policy. Stringer reckons that since the start of the Eat Out to Help Out policy, he has sold £10,000 worth of alcohol – and most of that goes to the government in tax.

There is another, if more invisible, positive side to the policy. Bars and restaurants, which were among the hardest hit of all industries by the lockdown, have been given a new lease of life. Many that had to shut during lockdown have re-opened. Some have not.

There are winners and losers. And those businesses, like The Bell, that have adapted, have benefitted.

The discounted meals, together with the cut in VAT to 5% for the hospitality trade, has given them the incentive to be imaginative, to rework their own businesses to cope with the new social distancing rules and etiquette and hire bar staff again.

Having the guts to start and run your own business is a highly under-rated quality: having the grit to risk your own skin and capital and work 24/7 whatever the outlook is rare. By underwriting prices, the Chancellor gave businesses owners the confidence to take risks again, to release those innate animal spirits that most entrepreneurs possess in abundance if allowed to flow freely.

And it works. To cope with the queues waiting for food, Stringer was making the pizzas going into the oven as well as serving the food himself.

So, it’s no surprise Sunak is the hospitality trade’s new hero. But the fear now is that the Chancellor is about to blow his own success. If the latest leaks are to be believed, there are disturbing signs that the Chancellor has gone native to the Treasury and is taking the easy option of raising taxes. Alternatively, someone in the Treasury is stoking mischief.

According to a co-ordinated blitz of weekend news reports, the Sunak is considering a feast of wealth taxes in the forthcoming Autumn Budget to help pay off his emergency package, which will leave the public debt this year anywhere between £230 billion and £300 billion.

Is there any truth to the rumours? And if they are nonsense, as some insiders are saying, then why the leaks? As anyone with any basic economic sense understands, jacking up taxes on companies and individuals at this fragile stage of the recovery would be foolhardy in the extreme and would choke any growth.

There are two possibilities behind the stories: the Treasury is serious about wealth taxes and was using the press to fly the usual kite as a pre-Budget warning. Or someone inside has leaked the story to give Conservative backbenchers and indeed, voters, time to kick up a storm.

Either way, the leaks have done just that. It has also brought together unusual allies from the right and left of the political spectrum to condemn tax rises. Hearing Gerard Lyons, former adviser to the Prime Minister, Boris Johnson, while he was Mayor, and Yanis Varoufakis, the left-wing Greek firebrand and former Labour adviser, both dissing mooted tax rises on Radio Four’s Today programme was a joy.

They are not the only ones. Criticism is flooding in from all over: the CBI has come out all guns blazing, arguing that putting corporation tax back up to 24%, as was mooted, would be insanity. So has the Federation of Small Businesses, while the freelancers trade association, IPSE, describes the idea as “unjust, uneconomical and unbelievable.”

Unbelievable is the right description. Raising taxes now would be bonkers, and counter-productive. It would be a surefire way of stifling growth, of making sure that companies which are already struggling will go ahead and sack employees to cut costs as the furlough scheme comes to an end. Or the bigger companies will simply set up shop in Zug. Some are even talking about a 1970s style brain-drain if higher personal taxes were to be introduced.

If the Chancellor is remotely tempted to jack up taxes, he should look to his own success with the Eat Out to Help Out policy and see that it’s a bad idea. We need more policies – and full-blown tax incentives – along the lines of the discounted meals.  He should start with making it more attractive for individuals to invest in start-ups and SMEs by raising the investment tax relief thresholds, abolishing tax on companies giving shares to their employees to spread wider share ownership, stop capital gains tax on investments in companies on AIM, the junior stock market, and increase R&D rates. I could go on…

There are so many imaginative and innovative levers to pull, if he can stop himself being captured by Treasury groupthink. Raising taxes is the easy way out but lacks imagination. It would also be terrible for the country’s morale as such a delicate time. Yet it won’t be easy for Sunak to resist the Treasury’s bean-counters if they do want to steam-roller ahead with tax rises. As one insider notes, the Treasury should be seen as the country’s third political party.

Getting the public finances into a better shape can be delayed for now until we get a better view of where public debt will be by the end this year. But choking off what looks like a fairly strong V-shaped recovery which is now underway would be counter-productive and ensure even more debt will have to be paid for Universal Credit and other benefits associated with high unemployment and low growth. Interest rates are low – for the government but ironically not the public – so paying back those monthly interest payments can be spread over time. There is no rush.

Of far greater importance is giving small companies such as those run by The Bell’s Stringer and start-up wannabes the right environment in which to grow and create new jobs. Sunak’s gamble with Eat Out to Help Out has paid off. Paradoxically, he has proven that giving Britain’s taxpayers an incentive boosts demand. Humans really are quite basic creatures.