Industry experts have welcomed the delayed start of the new 20 per cent rate of VAT, claiming it will allow hospitality companies to find ways of absorbing the additonal costs rather than passing them on to cash strapped consumers.
In a tough first budget yesterday, chancellor George Osborne revealed that VAT would increase from its current rate of 17.5 per cent to 20 per cent from January of next year, as widely expected.
Analysts at brokers Panmure Leisure and Numis, who had previously flagged up a VAT increase as the biggest threat to the hospitality industry’s recovery, welcomed the delay in its introduction, adding it would afford operators time to find ways of absorbing the additional costs.
Simon Hughes, UK Managing Director at property agents Christie & Co, said: “The widely forecast rise in VAT will inevitably impact operators at the start of next year. However the next six months grace period will allow businesses to prepare for this increase and build on the trading momentum experienced over the last six months."
However, a note issued today by Numis warned that wet-led pubs and operators such as JD Wetherspoon could find it very hard to absorb the rise, and there remains concern that the increase could dampen consumer spending leading to a further deterioration in trading.
Renaissance Chancery Court Hotel to absorb rise
Marriott’s Renaissance London Chancery Court Hotel has become one of the first hospitality operators to reveal it will be absorbing the VAT increase announced in the emergency budget.
The hotel will be absorbing the increase for all group and event bookings throughout 2011, as long as they are confirmed before 31 August.
Fiona Stilborn, director of sales and marketing at the Renaissance, said: “By absorbing the VAT for our guests, we are hoping to ease some of the pressure on them once the new budgetary measures are in full force.”
Orchid attacks VAT rise
Simon Dodd, commercial director at pub operator The Orchid Group, said news that there would be no further increase in alcohol duty was good but attacked the VAT increase.
“Orchid is strongly against the VAT increase, which will be imposed on January 4th. Our recovery is fragile and the increase of 6p a pint in January 2011, followed by a CPI plus 2 per cent increase [via the beer escalator] that could add another 6p to 8p on a pint, could dramatically damage this.”
The Society of Independent Brewers added that it was ‘more of the same for pubs’, while the BII expressed disappointment that its members in the licensed trade face the 'burden of new VAT rates'.
InterContinental has already described the blanket increase as a ‘missed opportunity’.
Customer service key
David McHattie, chief executive of the Hospitality Skills Academy said delivering good customer service was more important than ever, especially if the rise in VAT leads to less custom in restaurants, pubs and hotels and intensifying competition for business within the sector.
Budget for small business
The Forum of Private Business said the budget had been good for small businesses, with a 1 per cent cut in small companies’ tax, together with the new £5m threshold for entrepreneurs’ relief on capital gains tax.
The small business group said moves to introduce National Insurance (NI) exemptions for some new employers were useful, and added that a pledge to review employment law, contained in the full budget document, was most welcome.
An increase in the NI threshold will reduce the burden of the planned increase in employer’s contributions , announced by the Labour government and due next year, from £4.5bn to £1.4bn according to the CBI.