Restaurants in France 'will pocket cut in VAT'

Taxes on restaurant meals in France are due to be cut next year but most meals will be no cheaper than before, a survey published yesterday suggests.

The French government has persuaded the European Commission to change its VAT rules to allow restaurant meals to benefit from the lowest rate of tax - in France's case 5.5 per cent instead of 19.6 per cent.

A poll of restaurants revealed that almost all intended to keep most, or all, of the windfall to boost profits, reduce losses or hire more staff. Only 7 per cent said they would pass on the whole of the tax cut to customers; only four in 10 expected to cut prices at all.

The survey also found that the tax cut would generate fewer jobs than the government and restaurant industry had claimed. Supporters of the tax cut said it would create 40,000 jobs in 18 months, but the poll of 386 restaurateurs suggests the figure would be 18,000.

With fewer people eating out because of the economic downturn, many chefs say they need the tax cut simply to stay in business. Michel Sarran, a Michelin two-star chef in Toulouse, said: "The restaurant business provides more bankrupts than any other. This tax cut is a question of survival."

The findings of the survey will embarrass the government, which sold the VAT cut to Brussels on the grounds that it would benefit the tourist industry and the economy. Although the principle has been accepted by the European Commission, the changes must be approved by all EU governments in the autumn.

The tax measure is already controversial. Cutting it to 5.5 per cent would reduce the government's annual income by €3bn (£2.1bn) at a time when the budget deficit is threatening to break EU rules for the third year in succession.