Hoteliers have reacted cautiously to the United Kingdom government’s latest budget round and say more needs to be done to help the hotel industry, which has been brought down severely by 20 months of the COVID-19 pandemic.
The biggest omission in the U.K. budget is that there was no announcement on maintaining the pandemic-era rate of value-added taxes, with the rate due to soon revert to the former level of 20%.
Hoteliers nationwide have long asked for a reduction to help the U.K. hotel industry compete with hotel and tourism offerings in mainland European countries where rates are in many cases even lower than the reduced, pandemic-era level of 12.5%.
Viv Watts, co-founder and managing partner of hotel firm AGO Hotels, said he is disheartened by much of what he heard in the budget announcement.
“Specifically, we were hoping to see a promise that the VAT for the hospitality industry will remain at the current rate of 12.5%," he said. “We also would have liked to have seen a temporary visa scheme introduced for the hospitality sector, to address staffing shortages and ensure that the industry can meet the growing demand of guests as travel opens back up.
“As a hotel and leisure brand, we feel it is necessary to recognize that companies within the sector will need more of a helping hand if they are to return to pre-pandemic levels,” he added.
Rating Relief
The budget did contain some relief on business rates.
Following repeated calls from the hotel industry and others to overhaul the current legislation on these rates, Chancellor of the Exchequer Rishi Sunak said he will implement a discount for the next 12 months, as well as a review of their overall structure and pricing.
He told Parliament Wednesday that “any eligible business can claim a discount on their bills of 50%, up to a maximum of 110,000 pounds sterling ($151,158). That is a business tax cut worth almost 1.7 billion pounds [sterling].”
Sunak said there will be a change in how business rates are calculated, with the two initiatives worth approximately 7 billion pounds sterling to businesses over five years.
This part of the announcement sounded sweeter to hoteliers, even though the discount is capped.
Leon Thompson, UKHospitality Scotland’s executive director, said that while the Scottish government has provided two years of 100% relief on business rates, hotels and hospitality businesses still face an uphill battle.
“[Businesses] face a cliff edge from April 1, 2022, if relief is not continued," Thompson said. "The chancellor has declared his support for business, and the Scottish Government must at least match this if hospitality businesses across Scotland are not to face further financial difficulty and possible closure."
Watts agreed that the initiative provided respite.
“We are pleased to see the 50% business rates discount for the retail and hospitality sectors, and we believe this will help create breathing room for companies as they bounce back from the pandemic,” Watts said.
On Tuesday, the U.K. government announced increases to the National Living Wage and National Minimum Wage. The National Living Wage will increase by 6.6% to 9.50 pounds sterling per hour, paid to workers 23 years old and older, while the National Minimum Wage, paid to workers younger than 23, will rise 9% to 9.18 pounds sterling per hour.
The government was chastised by the speaker of the House of Commons for announcing these changes publicly before it announced them to Parliament.
Wages Increasing
Philippa Goldstein, senior analyst of hotels and leisure at business advisory Knight Frank, said hoteliers are seeing wages increase by larger percentages as labor challenges continue.
“Across the sector, [labor challenges are] resulting in payroll costs increasing well above the NLW, rising by as much as 15% to 20% in order to retain existing staff and compete for new employees,” she said.
She added the U.K. hotel industry must pull out all the stops if it wants to attract employees and stem continued departures from the sector.
Alcohol — in most cases — and fuel duties have not been raised, while air passenger duties for domestic flights will be lowered. Air passenger duties for flights of more than 5,500 miles — London Heathrow to New York City’s JFK Airport is not even 3,500 miles — will likely be subject to higher rates as of April 2023.
Kate Nicholls, CEO of UKHospitality, which represents approximately 730 businesses and 85,000 venues, said the simplification and reduction in alcohol duties is welcoming.
She added hotels are faced with myriad costs that are rising noticeably of late.
“[Sunak] has shown real innovation and creativity in reforming an archaic system of duty, which we applaud. … [As] positive as these announcements are, hospitality remains incredibly fragile, facing myriad critical issues," Nicholls said. “Rising utility bills, wage bills and food and drink prices have resulted in 13% inflationary costs that businesses are having to absorb at the same time as they navigate severe supply-chain issues and chronic staff shortages."