My cat keeps leaving dead mice on the kitchen floor. He looks incredibly pleased when he does it – I think he thinks I want to eat the mouse.
Reader, I don’t want to eat the mouse. There’s often a similar thing in Budgets. Chancellors announce a change which they hope will make someone happy, only to find the target looks a touch like they’re staring at a dead rodent left by their slippers. That’s what happened for the hospitality sector with the Budget.
Let’s start with business rates. Business rates are very complex, for better or worse. The Chancellor announced a five pence reduction in the ‘business rates multiplier’, in effect the tax rate, which sounds great. But at the same time, the business premises themselves were revalued so businesses are paying a slightly smaller percentage tax on a far higher number. What does it mean? Well, pubs will be paying at least 50% more on average than they are today.
By contrast the Amazon warehouses that the government said they wanted to balance the costs of business rates towards, look likely to see their rates up by less. So much for saving the high street.
One third of hospitality businesses are operating at a loss, 76% have had to put up prices.
Next, we turn to tourism taxes. The government said in Parliament just two months ago that they have no plans to introduce such a tax (which would in hindsight make a fun freedom of information request). But times change, and we’re going to get a tourism tax in England following a consultation.
You might fairly reasonably think that’s fine, since we all pay these things in Europe. But in Europe they also have far lower VAT on holidays. France, Spain, Italy all have 10% VAT. Germany 7%. The list is all very much of this sort of level. Here in England we pay 20%. We’d be unique in having a full fat VAT rate AND a tourism levy.
If that levy is 5% - which is a standard number – it means that you’ve got a 27% tax rate on holidays, partly because madly, the levy itself is VATable. The other problem with the plan is that domestic holidaymakers will pay it too. That 5% levy will add up to £500m in extra taxes on trips we take inside England.
Elsewhere minimum wages continue to rise: a 4.1% increase for over 21s to £12.71 per hour, and an inflation busting 8.5% increase to £10.85 for 18-21s.Why the difference? The government want to equalise the minimum wage for everyone over 18. The balance on minimum wages isn’t easy – you want to ensure fair pay but don’t want to set pay at such a high level that people cannot find jobs. £12.71 is over £25k a year full time, with national insurance and pension on top. In practice it’s nearly £29,000 in total. We are certainly seeing some employers scale back on early career roles which don’t return enough profit to cover the cost.
Last year’s Budget was expected by the Office for Budget Responsibility to cost around 50,000 jobs – but the impact has been about four times that, with half the jobs lost economy wide coming just in hospitality.
One third of hospitality businesses are operating at a loss, 76% have had to put up prices, and 63% have reduced the hours available to staff. The line between viability and closure is now gossamer thin. This year, it's hard to predict exactly what the impact will be. It seems certain that more jobs will go, or perhaps never be created. Prices will undoubtably rise. And investment will stall.
I’m often asked why the government seems to be so determined to asymmetrically hammer hospitality. The first point is to say that this question isn’t special pleading, there is evidence that the sector is uniquely harmed. The 100,000 jobs lost in hospitality since last year’s Budget represent half of all jobs lost in the economy. The logic behind the asymmetry is explicitly stated by the Government in their Industrial Strategy, and everything else is downstream of there. In the Industrial Strategy they say: “This is about positive choices: backing eight sectors (the IS-8) with the highest potential, and the frontier industries at their leading edge.”
Despite challenge from industry, they have yet to set an approach to the 70% of the economy outside of those sectors, hospitality included. That has had real world impacts from disproportionate and regressive taxes on lower earners, and the exclusion of sectors like hospitality from accessing skills and training budgets or financial support from the British Business Bank.
To some degree, we are seeing the opening of a two-tier economy, where for eight sectors the Government talks about lower tax rates, reduced regulatory burden and active practical support. For the rest of the economy it is sin taxes, the clammy hand of regulation and exclusion from key government schemes. So hospitality should not expect the Government to come to the rescue anytime soon.
History is that hospitality finds a way.
The advantage we have is innovation – where the consumer changes, hospitality is adept at changing too. Take the rise of the late license, alcohol free dessert bar – for a younger generation where cultural norms, religious objection or simple health concerns mean people may not be drinking: the dessert bar is the new pub. They can sit and chat and flirt and experience the dramas of youth in an environment their parents are comfortable with.
Or competitive socialising, which is monetising an alcohol-agnostic social environment. Or new cuisines which bring interest and demand from across society – look out for the first person to do a high street jollof rice restaurant: that would be a massive smash hit.
In the medium term it seems inevitable that we will see closures and job losses on the high street. It’s a challenging trading environment even without a government seemingly determined to make life harder.
But the history is that hospitality finds a way. A positive person might hope that as rents equalise to reflect the new reality, innovation on the high street will come back and young enterprising people will create the venues of the future.
Allen Simpson
CEO, UKHospitality
About UKHospitality
We are the trade body for hospitality in the UK. We lobby government, champion the hospitality sector and provide expert advice and guidance.
www.ukhospitality.org.uk/
