The measure is among a package announced by chancellor Rishi Sunak, including a cushioning payment to employers once furlough schemes end and a £10 eating out discount during August.

Sunak said the VAT rate on hospitality and tourism businesses would be cut from 20% to 5% from next Wednesday. It will apply until January 12 at hotels, B&Bs, attractions and other tourism businesses.

The government will also provide a cushion for employers to encourage job retention when furlough schemes end in October.

“If you bring someone back and continuously employ them until January, we will pay you a £1,000 bonus,” Sunak said. The payment will apply to those staff earning at least £520 a month and cost £9 billion.

The hospitality sector got a second boost with Sunak’s “Eat Out to Help Out” scheme. During August, participating restaurants can offer up to a £10pp discount to clients Monday to Wednesday and claim a refund from the government.

Sunak also announced a package of support to create jobs for young workers under the Kickstart scheme. The government will cover the wages of 16-24 year olds working a minimum 25 hours a week for six months.

Sunak said the measures were necessary to get the economy moving: “In two months, the economy contracted 25% - the same amount it grew in the previous 18 years.”