Written by Luke Paterson
Edited by Antony Fitzsimmons
14 August 2020
Reading time: 4 minutes
There is a popular adage in economics which is that there is no such thing as a free lunch. But what about one that’s half price?
For those not living in the UK, the Eat Out To Help Out scheme is a government discounted dining offer whereby those eating at a participating restaurant between Monday and Wednesday enjoy 50% off every meal (excluding takeaways, alcoholic drinks, and service charges), up to a maximum of £10 per head. On the face of it, the scheme sounds like a great plan. The hospitality industry has been particularly hard hit by the coronavirus-ravaged country, with Byron Burger announcing the closure of more than half of its outlets, and 1,200 jobs disappearing from Ask Italian.
According to HM Revenue and Customs, 10.5 million customers have used the government’s initiative at participating restaurants and cafes in the first week. The scheme has already attracted 83,068 venues across the country, but there is quite a lot of speculation amongst economists as to how effective the policy really is.
The aim of the scheme is obviously to rebuild physical consumer confidence and provide a more optimistic outlook to hopefully stimulate the economy into a recovery. However, some economists are describing the scheme as a gimmick aimed at short term objectives as opposed to a longer-term recovery plan. The major concern with the policy, as touched on in an early essay Life after lockdown… an economic perspective, regards a fabricated trade-off between the economy and public health. Moreover, financial incentives to eat out signal the priority to rebuild the economy during COVID times; however, this message is slightly inconsistent with the general consensus that the only way to return the economy to normal is by suppressing the circulation of the virus to manageable levels. Some countries, like New Zealand, have demonstrated this by virtually eliminating the virus with effective health messaging and an aggressive test-and-trace programme which has allowed the country to go back to a ‘normal life’ without fear (thus far) of a second wave. In other words, a mass program encouraging eating out at the end of summer might not be worth the short-term boost if the policy causes a bad winter.
During lockdown, many consumers received support payments to maintain livelihoods (which due to limited consumption options has led to huge savings, in some cases). However, post-lockdown, physical businesses needed to change their practises to make their site(s) COVID-secure with adherence to social-distancing limits (additional costs and capped revenue). This would lead one to likely conclude the issue edges more towards a supply-side problem, though a lack of consumer confidence remains a concern. Most top restaurants in the UK are now booked up for the whole of August, but some are finding that consumers are spending less per person on discounted days with the average claim being close to £5 (possibly as a lot of the big spenders – older individuals – are staying inside). There are also fears amongst some smaller restaurant owners that the policy is causing people to eat out earlier in the week as opposed to on weekends (when the largest takings for the hospitality industry occur), but overall it’s likely the policy will help boost the sector.
The daunting issue is to come in September when lots of restaurants must pay rent, with some businesses 6 months in arrears. This seems a more pressing issue which requires government assistance for the survival of the hospitality sector in the immediate time period. Although there is a lack of consumer confidence (and thus a demand-side problem), it is overshadowed by a much larger supply-side problem.
According to the Centre of Retail Research, the number of dining outlets closing is already 52% higher than in 2019, with a lot of these being small businesses. Logically, it doesn’t matter if there are more consumers as most restaurants can’t safely seat as many diners, and are spending a large proportion of the takings on financing a backlog of bills. Indirectly, this policy could be encouraging restaurants, especially smaller venues who are struggling, to forgo with safety measures to improve their chances of survival.
The scheme is also somewhat inconsistent with the UK government’s recently announced obesity strategy (as fast-food chains are included in this initiative). Nevertheless, if it can be carried out safely and further support is given to industry’s short-term liabilities then hopefully by the time strict measures are not needed tens-of-thousands of jobs could be saved. Let us just hope the policy doesn’t leave a bad aftertaste!
HM Revenue and Customs