Rachel Reeves would like you to order off the kids’ menu

His Majesty’s Treasury, yesterday:

From 25 June to 1 September 2026, VAT will be slashed on eligible activities, to helping [sic] families enjoy the weekend treats, the days out, the small plans that make life enjoyable during the cost of living squeeze while supporting the businesses that depend on summer footfall.

Great British Summer Savings will be a targeted and temporary scheme to reduce the costs of children’s meals in restaurants, children’s tickets for theatres and cinemas and tickets for everyone for attractions like soft play, adventure centres, and theme parks   [sic] helping families enjoy a day out for less.

Typos and provocative double spacing aside, this, as MainFT’s Stephen Bush writes, is largely an exercising in trying to save Labour’s Chancellor Rachel Reeves:

The chancellor’s allies have briefed pretty widely around Westminster that there is a case for keeping her in post under a new prime minister. Part of what we are seeing is the chancellor showing how she could work under a different prime minister setting a new direction, hence the Treasury’s floating of food price caps and of rent control.

Amid the political machinations and McCain’s-chips-ad writing style of it all, FT Alphaville’s attention was unsurprisingly grabbed by one element of the Treasury proclamation:

VAT

Fine, we go again.

Part 1: VAT’s politics

VAT (value-added tax) in a UK context is a consumption tax levied at a standard rate of 20 per cent on a great many products, and also not levied on a great many products. Sometimes it is levied on products people think it should be levied on, and sometimes it isn’t. Some day, someone should probably write about that.

Anyway, here, via its own policy paper, is a precis of what the Treasury is proposing:

This brief explains a temporary reduced rate of VAT of 5% that will apply to:

• certain supplies of children’s meals
• children’s admission to theatres, cinemas, concerts, exhibitions and shows
• all admission tickets to certain attractions suitable for families with children

The reduced rate will apply from 25 June 2026 to 1 September 2026 (inclusive).

The reduced rate replaces the standard rate of VAT of 20 per cent for supplies within scope during this period. These changes are subject to the relevant statutory instrument being made and coming into force, and this brief reflects the law as it is expected to apply once enacted.

Perhaps the most generous description we can give to this policy is that it’s naive. Other adjectives are available.

Let’s tackle the pricing point first. A reminder of how VAT works: qualifying businesses charge it on their products or services, in effect collecting it from customers. They then pay HM Revenue & Customs an amount that’s typically the net of the VAT they received and paid over the relevant period.

So, in a simple example, if you (as a UK consumer) pay £1.20 or whatever ungodly amount is being charged for a packet of Monster Munch these days, then the vendor keeps £1 (which might be taxed further) and sets aside the 20p (20 per cent of the original price) for the taxman.

Now let’s imagine the VAT rate on Monster Munch is cut to 5 per cent. The vendor might adjust to charge £1.05 a packet, still keeping £1 but paying 5p to HMRC.

Now, ask yourself: would any business actually do that?

Part 2: No

FT Alphaville can sometimes be accused of cynicism but, like, come on. At the risk of dismissing an entire field of microeconomics, the presence and rate of VAT on products is surely moot to consumer prices over such short periods.

Having established (via the evinced pricing power of some of the country’s biggest companies) that customers will pay £1.20 for a packet of Monster Munch, which of the following seems like a more probable business owner response to a temporary 15pp VAT cut?

1. Reflect the cut, charge £1.05, maintain £1 pocket/packet. Sit back and think what a great thing you’ve done for Britain.

2. Reflect the cut, but continue to charge £1.20, receive £1.14 pocket/packet for a couple of months. Sit back and think what a great thing you’ve done for yourself (part of Britain).

An email full of “stakeholder reaction” sent to journalists by the Treasury yesterday (oh how wonderfully the sausage is made) included this from Lord Sir Martin Lewis, the only trusted man in Britain:

It’s good to see them finally doing a retail offering. This is the type of thing I’ve been telling them for the last couple of years that they need to be doing, actually things that people can see a manifest benefit from.

Some of them, like the ‘British Summer Saving Schemes’, for consumers at least, are a bit gimmicky. This is a temporary cut in VAT on summer attractions for adults and children – fairs, theme parks, zoos, museums – and some just for kids – cinemas, soft play and restaurants – from 25 June until 1 September.

I mean, look, that will be nice for people. It’s a reduction in VAT from 20% to 5%. It will be good for those hospitality industries that are involved in it. And hopefully they’ll pass all [of that VAT saving] onto consumers. Then it’s win-win.

First, fair play to the Treasury for proactively supplying journalists with a quote that describes their policy as “gimmicky”, the same line being taken by, uh, the Conservative Party.

Secondly, “hopefully” is carrying an awful lot of water: in practice, this is primarily a handout for leisure and hospitality businesses, rather than families — who will only benefit if the intermediary companies decide they should. A factsheet released alongside the Treasury announcement lists the money potentially saved on various transactions “[if] the business chooses to pass through the full benefit”. Bless.

Sorry by the way, did we say families? We of course meant “punters”. MainFT:

“This is about demonstrating to punters we get it,” said one ally of the chancellor.

Maybe this is all good politics, that’s not really our field.

Part 3: Think of the children

Fiscal points aside, there’s a classic VAT paradox waiting to emerge here: what, exactly, is a children’s meal?

Since it’ll have to come up somewhere in this article, here’s a Ricky Gervais thing. We really, really encourage you to watch this because it could not be more relevant:

Perhaps surprisingly, the Treasury — who have tried to go holy hand grenade on this point — seem to have accepted the Gervaisian stance that’s it’s perfectly fine for adults to order off a kids’ menu (our emphasis):

The reduced rate applies to the supply of children’s meals where both of the following conditions are met:

• the meal is held out for sale only as a meal for children
• the meal is supplied as part of catering services by a restaurant, café or similar establishment for consumption on the premises

Whether a meal is held out for sale only as a meal for a child will depend on how it is marketed, presented and priced rather than who consumes it (for example, being included on a distinct children’s menu).

In practical terms, this suggests adults can benefit from the VAT-cut-for-kids, as long as they can convince the restaurant to let them order off the kids’ menu. And, in theory, restaurants are now more incentivised to be permissive, given (as per the pricing logic above) they can pad their margin on kids’ menu items over the summer.

There is more to think about. Treasury, cont. (our emphasis):

The reduced rate does not apply for:

• meals marketed as smaller portions
• lower-calorie options
• discounted versions of adult meals
• shared meals intended for both adults and children

Where the same meal appears on both an adult and children’s menu, the children’s version would normally be differentiated by portion size and or [sic] price. Portion size alone is not a determining factor.

Most of this feels uncontroversial, but the final paragraph is weird — is there any restaurant in the world that offers a kids’ version of dish that is smaller than the adult version but not cheaper?

Moving on…

Where a children’s meal is supplied for a single inclusive price (for example including a drink or additional courses), the entire package can qualify for the reduced rate. Optional items, add-ons or upgrades priced separately that do not form part of the children’s meal remain subject to their normal VAT liability. Describing an item as ‘free’ does not determine its VAT treatment and normal VAT principles apply.

Complicated tax application rules for bundles?!?!? Ooh boy that sounds familiar.

The Treasury wrap up with an example:

If a restaurant offers a fixed price children’s meal (for example, main, drink and dessert) on a dedicated children’s menu. The whole supply is subject to the reduced rate.

If a children’s menu lists a main meal, with a drink or dessert available for an additional charge. If these items are also on the children’s menu, they may also benefit from the reduced rate. However, if additional items are selected from the standard menu, then the reduced rate does not apply.

If a menu includes a smaller or cheaper portion of an adult meal that is not presented as part of a children’s menu. This is not a children’s meal and remains standard-rated.

We imagine that the economics of margins on adult versus children’s menus is one of those surprisingly interesting and nuanced things, but prima facie the smart play for British restaurants seem obvious:

1. This summer, introduce a “kids’ menu” which is the same as the adult menu but everything is half the price and half the size. (Don’t worry, you don’t have to actually let children into the restaurant.)

2. Encourage all your “punters” to double order from the kids’ menu instead of buying an adult portion. (The Gervais Technique)

3. For about two months, improve your margins on every meal by about 14 per cent.

If you’d like to hire FT Alphaville for tax consultancy, please reach us via the usual channels.

Further kid menuing: