No Eat Out To Help Out – But Chancellor Gives The Hospitality And Leisure Sector An Opportunity To Rebuild

Chancellor Rishi Sundak’s budget yesterday continues to be warmly received by the hospitality and licensed on trade sector. In what the chancellor termed ‘honest and fair’ measures to balance the public finances, he pledged billions to continue to support businesses and families through the pandemic. He also stressed the importance of encouraging investment, especially in innovation, in order to build the UK’s future economy.

The government has extended the temporary reduced rate of VAT that is currently in place for hospitality and leisure businesses, a sector that has been one of the hardest hit by the coronavirus emergency.

Philip Munn, partner at RSM, comments: ‘As expected, the Chancellor has decided to extend the temporary reduced rate, which will remain at 5 per cent until 30 September 2021. The surprise is that this will then be followed by an interim VAT rate of 12.5 per cent which will apply from 1 October 2021 and run until 31 March 2022 when the 20 per cent rate is expected to be reinstated. This is very welcome news for leisure and hospitality businesses who will continue to benefit during what is likely to be a long and drawn out reopening of the industry from the government’s planned date of 21 June 2021 but is expected to cost the Exchequer over £4.7billion and could create systems challenges for some businesses that have another VAT rate to apply. There was also good news for pubs and restaurants with a freeze on alcohol duties.’

The real estate adviser Altus Group estimates that the 3-month extension to the business rates holiday alone will save pubs £193.66 million, restaurants £158.31 million, hotels £232.99 million and cafes £30.76 million.

Will Hawkley, Global head of hospitality and leisure at KPMG said : ‘’Measures announced by the Chancellor recognise the devastating impact that the pandemic has had on the hospitality and leisure sector, and go some way to supporting operators through the short-term challenges to come, although at the heart of it all they just want to be open and serving customers again.

‘’Extensions to vital Covid support packages and a freeze on alcohol duty will be welcomed as will access to restart grants of up to £18,000 per premises. The recovery loan scheme – assuming payments can be made speedily – should provide some temporary relief as operators face a long wait until they can reopen.   The extension of the 5% VAT rate until 30 September 2021 followed by a 12.5% rate until April 2021 provides the sector with an opportunity to rebuild as it reopens in line with the Government’s roadmap.

‘’The extension of the business rates holiday until the end of June, followed by a two-third discount until the end of March 2022, will give operators in the sector time to catch their breath and re-build their businesses after a difficult year. However, the time bomb of the backlog of rent still remains.  This could be a massive issue for pubs and restaurants who need to know when and how this debt will be repaid and could be catastrophic for some operators once government support ends.

‘’The pandemic has shone a light on some long held issues impacting the hospitality sector, including the rise of online channels, the review of which was not mentioned today.  The question of how best to design a new system of taxation for our diverse hospitality and leisure sector is one that requires detailed analysis from the Government. The current business rates system has failed to keep up with the pace of change that the sector has faced over decades, but it’s important to get any reform right.

“In addition for the need to address the business rates issue, there is a broader operator versus property owner agenda that needs resolving. The key aim has to be for operators and landlords to work more closely together, with changes such as the introduction of turnover-based rents becoming more commonplace. However, large numbers of rent payments are still not being made, and without a change to the current system, the knock-on effect could see more pubs and restaurants fail, and retail landlords unable to keep up with their financial obligations. This will have much broader term implications for the overall economy.’’

Giles Fuchs, Owner of Burgh Island Hotel said: “Grants of up to £18,000 for struggling hospitality businesses are an extremely welcome feature of this Budget, given how much pressure the sector has been under since the beginning of the first lockdown almost a year ago.

“Combined with the extension of the business rates holiday and VAT cut, the introduction of this Restart Grant in April will support the hospitality and tourism sector to get up and running again at long last. Hospitality businesses will also welcome the opportunity to benefit from the extension of the furlough scheme until September. And, employing three million people and generating £130bn of economic activity, the sector’s recovery can only be good news for the UK economy as a whole.

Alongside this, however, the sector would welcome support which repairs the emotional toll the pandemic has taken on its workers. Many have suffered from loneliness and a loss of purpose as well as the financial setbacks of successive lockdowns, so if we are indeed to build back better, we should ensure that the full breath of Covid-19’s impact is addressed going forward.”

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: “The new restart grants will funnel support to those businesses that have been worst hit by the pandemic – including non-essential retail businesses, with grants of £6,000 per premises, as well as businesses planning to reopen in April, such as hair salons and gyms, with grants of up to £18,000.

“These cash grants are also being supplemented by a new recovery loan scheme, to replace CBILs and BBLs. This Government-backed scheme is available to businesses of all sizes, providing loans from £25,000 to £10 million through to the end of the year. We are expecting take up of this scheme to be high and businesses should move quickly to take full advantage of the scheme.”

“The 5% reduced rate of VAT has already helped cash-strapped businesses to keep going during the lockdown restrictions. The Chancellor’s decision to go a step further and extend the reduction through to the end of September would have been welcome enough, but his decision to add on another six months at an interim rate of 12.5%, before returning to the standard rate next April, has allowed hospitality & leisure and tourism businesses much-needed breathing space and it could save some from bankruptcy.”