UK inflation stalls at 2.8%: when tax cuts become a hospitality scam

The Bank of England’s headache just got worse

Inflation refuses to budge. At 2.8%, it’s stuck where it was in April, defying forecasts of a slight dip. Transport costs are climbing faster than expected, while food prices—meat, cheese, vegetables—are finally easing, but not enough to drag the headline figure down. The Bank of England’s Monetary Policy Committee (MPC) was already leaning toward a rate hold this week. Now, with oil prices sliding after the US-Iran ceasefire, even the hawks are backing off. Pantheon Macroeconomics has scrapped its July hike prediction entirely. The new consensus? Rates on hold until at least 2027.

But here’s the kicker: this isn’t just a monetary policy story. It’s a political one. The government’s summer VAT cut on children’s meals—dropped from 20% to 5% between June 25 and September 1—was sold as a lifeline for families and struggling pubs. Instead, it’s shaping up to be a masterclass in corporate opportunism.

The VAT cut scam: when "Great British savings" become a hospitality heist

Rachel Reeves’ "Great British Summer Savings Scheme" was supposed to be a win-win: cheaper meals for kids, a boost for cash-strapped venues. Instead, the hospitality sector is treating it like a blank cheque. One London restaurant has already rolled out a £25 "kids’ menu" featuring wild burgundy snail salad and anchovy butter toast. The message is clear: if the government is dumb enough to subsidise £25 snails, the industry is happy to take the money.

The problem isn’t just the exploitation—it’s the hypocrisy. The same pubs and restaurants that spent years lobbying against wage hikes and rent controls are now first in line to milk a tax break designed for working-class families. And the government? Silent. No guardrails, no price caps, no enforcement. Just a three-month free-for-all where the only rule is: charge whatever you can get away with.

This isn’t a policy failure. It’s a design feature. The Treasury knows exactly how this plays out. In 2020, the Eat Out to Help Out scheme saw restaurants jack up prices by an average of 6% while pocketing the subsidy. The difference this time? The target isn’t adults—it’s children. And the optics of cracking down on "kids’ meal" pricing are toxic. So the government will let the scam run its course, then pat itself on the back for "supporting families" while the hospitality sector laughs all the way to the bank.

Capital gains tax: the quiet raid on Britain’s middle class

While the VAT cut grabs headlines, another tax change is flying under the radar—and it’s hitting far more people than the government admits. Capital gains tax (CGT) receipts soared to £24bn last year, up nearly 80% in a single tax year. The reason? A series of stealth changes that have dragged more middle-class taxpayers into the net.

The annual exempt amount—the threshold below which no CGT is paid—has been slashed from £12,300 in 2022-23 to just £3,000 today. Meanwhile, the basic rate of CGT has crept up from 10% to 18%, and the higher rate from 20% to 24%. The result? More people selling second homes, shares, or even inherited property are getting hit with unexpected tax bills. And unlike income tax, CGT doesn’t account for inflation. Sell a flat you bought in 2015, and you’ll pay tax on the full nominal gain—even if most of it was just inflation eating away at your money.

The government’s response? A shrug. HMRC calls it a "cash machine," and they’re not wrong. But this isn’t about fairness—it’s about filling a black hole in the public finances. The problem? The people getting squeezed aren’t the ultra-wealthy. They’re the teachers, nurses, and small business owners who saved, invested, and now find themselves on the wrong side of a tax system that’s increasingly rigged against them.

Lidl’s pub experiment: when retail becomes the last refuge of British hospitality

In a move that’s equal parts genius and desperation, Lidl has opened its first-ever pub. The Middle Ale, a "world first" for the discount supermarket chain, is a direct response to the collapse of Britain’s traditional pub sector. Over 1,000 pubs closed last year alone, victims of soaring energy costs, business rates, and a consumer base that’s too broke to drink. Lidl’s solution? Cut out the middleman.

The Middle Ale isn’t just a pub—it’s a loss leader. Cheap beer, subsidised by Lidl’s grocery profits, designed to lure customers into the store next door. It’s the logical endpoint of a retail landscape where supermarkets already sell everything from financial services to funeral plans. Why not pubs?

But here’s the uncomfortable truth: Lidl’s pub isn’t a sign of innovation. It’s a symptom of a broken market. The UK’s pub industry has been hollowed out by private equity vultures, sky-high rents, and a government that talks about "community assets" while doing nothing to protect them. Lidl can afford to undercut because it’s not playing by the same rules. No business rates on the pub? No problem—just offset the losses against the supermarket’s profits. Traditional pubs don’t have that luxury.

So while politicians pat themselves on the back for "saving British pubs," the reality is starker. The only pubs left standing will be the ones owned by corporations with deep enough pockets to absorb the losses. The rest? They’ll become Lidl car parks.

What this means for Britain’s economy

1. Inflation isn’t going anywhere—and neither is the cost-of-living crisis. The Bank of England’s rate hold is a stay of execution, not a reprieve. Wages are stagnant, rents are rising, and the government’s "savings" schemes are just corporate welfare in disguise.
2. Tax policy is now a game of three-card monte. The government cuts VAT on children’s meals, then lets the hospitality sector turn it into a scam. Meanwhile, it quietly raids middle-class savings through capital gains tax. The message? If you’re rich enough to own assets, you’re rich enough to pay.
3. Retail is eating everything. Lidl’s pub isn’t a gimmick—it’s the future. As traditional businesses collapse, the only players left standing will be the ones with the scale to cross-subsidise. The high street isn’t dead. It’s just being replaced by supermarkets with delusions of grandeur.

The real question isn’t whether the government will step in. It’s whether it even can. With inflation stuck, taxes rising, and the hospitality sector in freefall, Britain’s economic policy is now a series of desperate improvisations. And the people paying the price? The same ones who always do.