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£3.4 Billion Budget Hangover Hits Hospitality

Significant increases to payroll costs and business rates taking effect today [1 April] jeopardise crucial investment in the hospitality sector.

Failure to tackle costs on hospitality businesses in the Budget means that the financial investment needed to deliver forecasted industry growth of 6% a year is at risk. Almost two-thirds of the sector’s annual £5.4bn investment in growth could be diverted into paying the new payroll and business rates costs.

Increases to the National Minimum Wage and National Living Wage will see the sector’s wage bill increase by £3.2bn. As a sector reliant on its workforce, employment costs make up over half of operating costs and hospitality pays £40bn in wages and employment taxes.

Increases to businesses rates add up to £224m. The tax on property heavily penalises community-based businesses, like hospitality.

After a collective failure to act in Budgets in Westminster, Edinburgh and Cardiff, UKHospitality is calling on all Governments to rebalance the costs that hospitality businesses pay and reduce its cost burden so they can make the investments needed to grow and create communities in which people want to live, work and invest.

The impact of an ever-rising cost burden has already been felt on confidence and investment, with openings of licensed premises at their lowest level in three years and two-thirds of businesses not optimistic about their prospects for the next 12 months.

The three quickest levers government can pull:
Fix business rates – replace short-term solutions with a permanently reduced business rates multiplier for hospitality, leisure and high-street retail sectors at a rate of 30 pence in the pound.
Employment costs – support businesses to introduce the record increase in the National Living Wage by temporarily reducing the rate of employer National Insurance Contributions.
VAT – reduce the rate of VAT on hospitality, leisure and tourism to 12.5%, returning to the effective policy during the pandemic and matching the average of our continental competitors.

Kate Nicholls, Chief Executive of UKHospitality, said:

“Every day, hospitality is serving Britain. It’s serving the nation with good food, drink and experiences, as well as contributing £140 billion in revenue, £54 billion in tax receipts and providing three and a half million people with jobs.

“All of those benefits to Britain, our lives and communities are put at risk by the £3.4bn Budget hangover hitting the sector today.

“Businesses can’t find £3.4 billion easily – that’s the cost of a billion cups of coffee. The money that they want to put towards investment in growth will have to be spent keeping their doors open.

“Our sector firmly believes in paying people a good wage that reflects their value and importance to what we do. But we need healthy and profitable businesses to do that, supported by regulation that doesn’t penalise a community-based sector.

“Governments across Britain have levers they can pull to help businesses keep serving Britain. They can, and should, fix business rates, ease employment costs and reduce VAT. I would urge them to pull these levers quickly.”