As George Osbourne prepares his 2016 Budget, due to be announced on 16th March, the UK hospitality industry is hoping be be high on his agenda.
Hotel, pub and restaurant owners have struggled through the economic crisis and as they prepare to take the cash-flow hit that the National Living Wage looks set to inflict, they’ll will want to know how the government intends to soften that blow.
We look at the key issues the hospitality industry would like addressed:
Help to balance the costs of the National Living Wage
Coming into effect on April 1st, the National Living Wage will introduce an hourly rate of £7.20 (it is currently £6.50) for the over-25s, rising to £9.00 per hour by 2020. According to the British Retail Consortium, it will cost the entire retail industry up to £3 billion a year.
And a survey by PWC has revealed that the hospitality sector can expect to pay £2.2 million more in wages this year and up to £13.2 million by 2020.
In order to redress the balance somewhat, business owners in the industry will want to see Osbourne reducing Employers’ National Insurance Contributions (by raising the lower earnings threshold) and by delaying the Apprenticeship Levy which was announced at the same time as the Living Wage in 2015.
Further cuts to alcohol duty
The 2015 budget saw Osbourne announce a 1p per pint cut in beer duty for the third year in a row.
This was a welcome move as the pub sector has suffered particularly badly from the effects of the recession and the reticence of the government to reform VAT sales tax and business rates.
Another 1p duty cut in the forthcoming budget is anticipated but with 29 pubs closing a week in the UK, surviving landlords could really do with a further boost.
There have been many calls to bring business rates, as well as VAT sales rates in line with what supermarkets pay.
Tim Martin, Chairman of JD Wetherspoon spoke out in support of his industry when the National Living Wage was announced last year:
‘The average price of a pint in a supermarket is less than £1 and we estimate staff costs to be around 10% or 10 pence. In contrast, a pint in a pub costs around £3 and staff costs are about 25% or 75 pence…Increased labour costs therefore affect pubs with far greater force than supermarkets. This disadvantage is compounded by a huge VAT and business rates disparity between pubs and supermarkets.’
Putting more money into the pockets of beer drinkers will go some way to alleviating the strain, but more needs to be done. Kate Nicholls CEO at ALMR agrees in a recent blog post:
‘A beer duty cut is totemic and will ease that pressure, but if the Government is serious about supporting pubs, then we need much more targeted help – high street rate relief and a cut in jobs taxes will help us meet the Government’s ambitions to be a high wage, high skills economy.’
Cut tourism VAT
At present both British and foreign tourists pay far more in tax when taking a holiday in the UK than they would if visiting many other countries in the EU.
A national campaign to cut tourism VAT has been gathering momentum over the past year, and the hospitality industry is hoping for a 5% rate on visitor accommodation and attractions.
In their submission for the 2016 Budget, the Cut Tourism VAT campaign claimed that reducing rates would be beneficial to the country in the long-run:
‘The tourism and hospitality industry is worth £126.9bn, accounting for 9.0% of the UK’s economy.’
‘Cutting Tourism VAT would create 123,000 jobs over the next ten years and improve the UK’s balance of trade by £20bn over 10 years. It would halt a long-term decline in the UK’s inbound- outbound balance and drive up visitor numbers.’
Gaining increased political support, the campaign is now backed by the Scottish Nationalist Party, Liberal Democrats, Plaid Cymru and the Green Party and, within government, by 138 MPs.
Service charge transparency
The British Hospitality Association is urging the government to make it a legal requirement for businesses to reveal to customers exactly where their tip is going.
Many customers are confused about the difference between a tip and a service charge and recent negative publicity surrounding establishments such as Pizza Express and has prompted consumers to demand more clarity. Ufi Ibrahim, CEO of the British Hospitality Association, explains:
‘The confusion has played a big role in generating negative headlines and unwelcome media attention for far too long. The suggestion is that some restaurant and hotel owners use service charges as an extra revenue stream, rather than passing them on to their employees. A lot of this coverage has been undeserved, as most restaurants do the right thing and realise the importance of rewarding staff for their hard work.’
It is hoped that a legislation that requires transparency from all establishments will improve public perceptions of tipping and, in turn, encourage consumers to give more frequently and generously.
The BHA already has support from leading industry figures such as Cote, Bill’s and Whitbread Restaurants as well as one of the nation’s favourite restaurateurs – Rick Stein.
Business rates reform
Last, but not least – the subject on every commercial property owner’s lips – business rates.
Under mounting pressure, the government announced in their 2015 Autumn Statement that they would be extending the Business Rate Relief (introduced to aid the smallest of UK businesses in 2014) until April 2017.
However, it has long been the view of most SMEs that the whole system of business rates and the charging criteria needs a serious overhaul.
The national business rate system was introduced in 1990 but the world of commerce and industry has changed dramatically since then.
Rating processes are now being called into question, with the question being: Is it fair to have a tax based on property values, regardless of the size and turnover of the business – or the changing patterns of property usage that affect some sectors more than others?
Most property owners in the hospitality industry, especially the hardest hit pub owners, feel the government should consider alternative tax bases.
George Osbourne will announce the findings of a ‘radical review’ of the business rates system on Budget day next week.
The government has pledged to ‘reduce the burden of business rates’ on all sectors with small businesses being a priority as well as facilitating clearer billing, better sharing of information and a more efficient appeals system.