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Page last updated at 13:03 GMT, Wednesday, 1 July 2009 14:03 UK

VAT cut boosts French restaurants

French ministers and senior officials drink coffee in a Paris cafe (1 July 2009)
The price of a cup of coffee is expected to drop from July

The price of eating out in France should be set to fall as a government tax cut comes into effect.

Value-added tax (VAT) has been reduced from 19.6% to 5.5%, in an attempt to increase consumer spending and create thousands of jobs.

French eateries have been badly hit by the global recession and by a smoking ban introduced in 2008.

It is estimated the cuts will cost the French economy more than 2.3bn euros ($3.3bn; £2bn).

Under the deal, restaurant and cafe owners have pledged to create an extra 40,000 jobs in the next two years, half of them to be reserved for trainees.

No obligation

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 which advertise reductions do pass them on.

Establishments will not be obliged to pass on the cuts to customers but 80% of businesses would do so, estimated Didier Chenet, head of a restaurant employers' association.

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 Reuters new agency.

The move follows several years of lobbying at the European Union by successive French governments.



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