By Kunal Sawhney, CEO of Kalkine (www.kalkine.co.uk)
The importance of the hospitality sector in the UK’s GDP is undeniably prominent, which has been truly highlighted in the November estimates by the Office for National Statistics (ONS). The UK GDP is expected to fall by 2.6 per cent for the month, with the hospitality sector contributing over one-third of the fall, as it remained almost entirely shut during the month.
As per ONS estimates, the services sector size has reduced by almost 10 per cent from a year ago. But the buck does not stop here, the decline which do not seem that harsher is just the beginning of the tsunami, the December and the January figures are likely to be extremely bad. Even Chancellor Rishi Sunak has said that things will get harder before they get better.
RISING DEBT AND CHRISTMAS WASHOUT
Eventually, it was not a good Christmas for the hospitality sector, especially for the drink only bar and pubs, which lost 84 per cent and 87 per cent of their sales, respectively, during the festive season. Situation at pub restaurants and food led pubs were not much different, the only thing was that they fared a bit better than the former category, losing sales of around 78 per cent. Just 10 per cent of the UK’s pubs and restaurants remained operational and that too with various restrictions. Overall, the busiest period of the year turned a complete washout.
Now what has started more worrying is the pile of debts amid no business for the hospitality sector with 31 March a crucial date nearing, when the moratorium or the government shield for insolvency gets removed. This is crucial because many landlords will start pursuing their full-year property rent, many of them have already indicated. UKHospitality has previously warned that it will be the tipping point resulting in a flurry of business failures and consequently another wave of job losses.
The moratorium due date has been extended from the initial date of 31 December and effectively saved many businesses from lease forfeiture and debt enforcement, which was estimated to be around £1.6 billion, reaching to almost £2 billion soon. It is a reality check for the government, as when the industry has plunged deep into debt, the overall insolvent business debt has declined.
While the extension of the furlough scheme until the end of April 2021 has supported the industry workers with up to 80 per cent of wage security from the government, the businesses also need to continue because employees can benefit only if the businesses manage to survive.
Among all odds, there was one good news from the Supreme Court judgment, which ruled in favour of thousands of small businesses for Covid-19 insurance pay-outs.These businesses are likely to receive pay-outs on insurance claims worth more than £1 billion. Kate Nicholls, Chief Executive Officer of UKHospitality, said that though more details are required, at first sight, it sounds positive news and insurers should oblige the claims of the policies which were taken in good faith by many small businesses.
Thanks to the Financial Conduct Authority who have vowed to ensure a quick claim for the businesses. As per its estimates around 370,000 policyholders are likely to benefit from the judgment.
SUPPORT FROM THE GOVERNMENT
Going by broader estimates, hospitality as an industry will take years to recover financially to the pre-Covid- 19 levels.The industry has piled up debts not only in form of property rent but the business loans, insurance, and VAT as well.The immediate need of this hour is an extension to the debt enforcement moratoria — this is the biggest and imminent threat the industry is about to face.The government should not escape its responsibility for such a vital industry in the face of availability of funds or the lack of parliamentary time.
It is not only the moratoria extension but being considerate about the forgiveness of rent for the closed sectors at least up to a half and rent review reset. So overall, a comprehensive plan is urgently required for the industry.With vaccine programme gathering pace, there are bright chances of economic recovery in 2021, and the hospitality sector must be prioritised to pace up the recovery process.