The United Kingdom has trod a rocky economic path in the past two months, and government officials hope their next budget will pave an easier way forward.
On Thursday, U.K. Chancellor of the Exchequer Jeremy Hunt released his Autumn Statement, which usually comprises tweaks to the main budget announced every spring. Hunt's budget contains major ramifications for businesses, including hotels, grappling with increases to energy and food-and-beverage costs, an inflation rate of 11.1% — the highest in the country since 1981 — and every likelihood of a recession in 2023 and perhaps 2024.
According to the U.K.’s Press Association, there is a deficit of 55 billion pounds sterling ($65.35 billion) in the country’s finances, a hole which likely will be plugged by spending cuts and increased taxes, which Conservative Party Members of Parliament regard as anathema.
In a speech today to the House of Commons, Hunt laid out his updated budget and painted a grim economic picture.
“In the face of unprecedented global headwinds … today we deliver a plan … to rebuild our economy,” he said.
Hunt said his plan will underline “stability, growth and public services” and blamed the situation on the Russian invasion of Ukraine, before admitting that the U.K. is in recession.
“Inflation will be 9.1% this year, and 7.4% next year,” Hunt said, citing the government’s Office for Budget Responsibility. “The U.K. is in recession, and things will get worse before they get better.”
Discernible income will be affected with the U.K. tax burden now at its highest level in 70 years.
Hunt's budget plan — initially called the "un-budget" — was an about-face response to the short-lived premiership of Liz Truss and former chancellor Kwasi Kwarteng's "mini-budget," which was announced less than two months ago on Sept. 23. Hunt was chosen as chancellor by Truss' successor, current Primer Minister Rishi Sunak.
Pressures
The fear for some is that this recession and budget will return the U.K. to an age of austerity, even if, as the government hopes, increased taxes will be canceled by larger pay increases.
Lionel Benjamin, co-founder of Ago Hotels, which operates 14 hotels in the U.K., said the main desire of U.K. hoteliers is that the system of business rates be overhauled. With the rates themselves decreased, that is now unlikely to happen.
Business rates are calculated on the square footage of business premises, which has an onerous effect on hotels.
Benjamin said business rates, which currently are suspended due to pandemic-era assistance, will be reintroduced.
Hunt made no mention of business rates, other than to say “[rate] bills should accurately reflect business values … [we will introduce a] 13.6 billion pounds sterling tax cut over the next five years, [and] two-thirds of businesses will not pay more next year.”
Kate Nicholls, CEO of the hotel advocacy organization UKHospitality, said the hotel industry needs a continued business-rates holiday.
She said her association’s latest research showed that hospitality businesses, including hotels, will have to pay 3.6 billion pounds sterling in April 2023 if business rates increase in line with inflation and the current relief is ended.
“The bill would be an increase of 900 million pounds sterling, on top of the 2.7 billion pounds sterling the sector should be paying in business rates if there was not a holiday," Nicholls said.
She said a failure to do this would be catastrophic, even fatal to many hotel businesses.
“Hospitality has been hit harder than any other sector by inflation, with many already struggling to pay their bills. To increase business rates bills by a third and hang a 900 million pounds sterling millstone around the neck of the sector would cause devastation,” Nicholls said.
Some Good, Some Not So Good
Following Hunt’s statement to Parliament, Nicholls said there were some positive takeaways, but the government could do much more.
"I’m pleased that the chancellor has listened to the vast majority of [our] proposals on business rates, covering a freeze in the multiplier, extended reliefs and no downward transition. This means those seeing their valuations decrease will see the benefit in their bills immediately, at the same time as increases are capped," Nicholls said.
“However, it remains the case that the current system is outdated and not fit-for-purpose. The government made a manifesto commitment of root and branch review and it’s essential that this is delivered as soon as possible,” she added.
Nicholls said there was not much in Hunt's statement to give hotel firms confidence to increase investment.
Corporation taxes, which are taxes businesses pay on profits, are already due to rise from 19% to 25% next April, a decision Truss declared on the same day she sacked Kwarteng.
Hunt also announced there will be a huge increase in “windfall taxes” on oil and gas companies that made substantial profits from the recent energy cost increases, which could be a significant financial relief. That tax will increase from 65% to 75% of profits on companies’ U.K. operations until March 2028.
That, together with a 40% tax on profits of “older renewable and nuclear-electricity generation, [will] raise 14 billion pounds sterling next year alone,” Hunt said.
Hunt also increased the National Living Wage from 9.50 pounds sterling per hour to 10.40 pounds sterling per hour.
That is yet another increase hotel firms need to pay, as the industry pays many employees the National Living Wage.