The United Kingdom government has outlined its 2024 budget, which aims in part to tackle the cost-of-living crisis but does not address many of the concerns raised by hoteliers.
The pressure for the delivery of tax cuts is heightened in this budget due to the imminence of a general election, which must be held on or before Jan. 28, 2025, but is more likely to be held in 2024.
U.K. Chancellor of the Exchequer Jeremy Hunt said jobs are being created by the government’s economic policies.
In the latest budget, the government announced a two-pence cut in every pound in national insurance contributions — which Hunt said are worth on average £450 ($571) per person per year — and an increase in air passenger duty for business-class air flights. Hunt said he also will cut capital gains taxes, which are charged on profits from selling properties.
Hoteliers have taken notice of the decision to restrict tax breaks that incentivize owners of second homes to rent those homes on short-term rental platforms such as Airbnb.
“At present, furnished holiday lettings benefit from a more generous tax regime, allowing them full relief for interest expenses. For investment properties, this relief is restricted,” said Kersten Muller, managing director for real estate at business advisory Alvarez & Marsal, in an email sent to Hotel News Now.
Muller questioned whether the reduction in capital gains tax will be another disincentive for listing a property as a short-term rental. One hope is that these properties will return to the general rental pool, where there is high demand.
“There is a concern that the [capital gains tax] changes increase costs and, even if the holiday homes are coming to the long-term rental market. ... The reduction in the higher rate of CGT on residential property is a partial sweetener for existing investors and second homeowners. It remains to be seen whether this encourages current owners to sell up,” he said.
Not Pleasing Everybody
The 2024 U.K. budget also states the value-added/sales tax threshold — at which small businesses and self-employed people are required to register to pay — will rise from £85,000 to £90,000.
Hotels and other businesses could benefit from lower utility costs due to a £120 million boost to the Green Industries Growth Accelerator, aimed at creating and improving supply chains for new technology such as offshore wind and carbon capture.
But the opposition parties in Parliament said the budget will not adequately address the cost-of-living crises or help the country emerge from a technical recession.
Critics contend that as tax thresholds have not shifted up in seven years, a rise of just below 6% or £5,000 does not come near to allaying the burden.
Keir Starmer, the leader of the Labour Party, said the government’s budget and policies have resulted in the “the highest tax burden in 70 years … and an economy that has not grown since the first quarter of 2022.”
Hunt said the budget provided the country with its “lowest effective tax rate since 1975 … lower than any G7 country” and “today’s forecasts show debt will fall to below 94% by 2028 and 2029, down from over 100%.”
He said the U.K. continues to have the lowest national debt in the G7, lower than Japan, France and the United States.
In the run-up to the budget, two letters — one signed by 45 Members of Parliament of the ruling Conservative party and the other by 112 hospitality and tourism CEOs — asked Hunt to reform value-added/sales tax and business rates for the sector.
The letter from the MPs stated, according to PoliticsHome, the “inequitable business rates regime … means hospitality businesses pay £2.4 billion more in tax than online outlets.”
UKHospitality, the country's principal hotels and hospitality membership organization, said its members have three main demands: a lower rate of VAT; lower business-rate multipliers, the mechanism that calculates individual business-rate tax demands; and an overhaul of the business-rates system itself.
The March 6 budget addressed none of those demands, and business rates are set to be reevaluated in April.
In a system in which property size is key in determining individual tax burdens, hoteliers are asking that the 6.7% increase announced in the government’s Autumn Statement be reduced to approximately 3%, which will be far closer to the government’s target for inflation.
Another unaddressed demand is to cut VAT on hospitality and tourism businesses to 12.5%, not the current 20%, to be closer in line with mainland European competitors.
James Bland, managing director of On the Move at marketing and business-advisory firm BVA BDRC, said the hotel and hospitality sector will be disappointed not to have secured the lower rate of VAT the sector has called for.
“UKHospitality … has warned that closures could continue without further support. With the inflationary pressures felt by consumers around the world suppressing travel intent, factors such as VAT-free shopping could make a difference in the mind of the traveler when choosing a destination,” he said. “With pull factors such as the Olympics this summer in Paris, the fear is that the U.K. is likely to lose out to European destinations.”