French restaurants drop prices after VAT cut

French restaurants have dropped their prices after a government tax reduction came into effect this week.

Value-added tax (VAT) in France was yesterday cut from 19.6% to 5.5%, in a bid to boost consumer spending and create thousands of jobs.

The move follows a decade of lobbying at the European Union by successive French governments.

French restaurants have been badly hit by the global recession as well as the country's smoking ban, which was introduced in 2008.

Under the VAT reduction, restaurant and café operators have pledged to create an additional 40,000 jobs in the next two years, half of them to be reserved for trainees.

Operators will not be forced to pass on the cuts to customers but an estimated 80% of businesses are expected to do so.

Economy Minister Christine Lagarde said the contract was "based on confidence and the responsibility that restaurants are assuming in price, employment and the quality of service".

She added restaurants would be monitored to ensure that those advertising reductions do pass them on.

Barbara Cohen, the owner of a restaurant in southern Paris, said she had seen a "strong rise" in custom after reducing her prices.

"We've been seeing clients who would come four or five times a month now coming seven times a month. It's really impressive," she told news agency Reuters.

VAT cut for UK restaurants will not happen, say experts >>

Caterers may be due VAT refunds after court ruling on takeaways >>

VAT change could cost pub sector £36m to revamp menus and tills >>

By Kerstin Kühn

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