Budget 2011: Impact on the hospitality industry

By Becky Paskin

- Last updated on GMT

Related tags: Small businesses, Business, Taxation in the united kingdom, Small business, Uk

The budget hasn't offered as much widespread relief as the hospitality industry hoped for
The budget hasn't offered as much widespread relief as the hospitality industry hoped for
Today’s budget has delivered good news for small businesses and lower level workers, but offers little hope for hospitality operators as a whole.

That’s the message from Davis Coffer Lyons, which claims measures to increase the basic rate tax threshold increases from £7,435 to £8,100 and extend the rate relief holiday for small businesses, is not enough to sustain the future of the industry.

“The Budget offers little help to alleviate pressure on operators’ suffering and does little to kick-start consumer spending,” says Mark Sheehan, managing director of Coffer Corporate Leisure. “Altogether, the net increase in income tax and national insurance against savings for many earners will hit consumer spending further. This is compounded with the recent VAT increase in December and the outstripping of wage increases by inflation - a hard combination to bear for operators.

“With 4-5 per cent predicted inflation for the year above compared to 1.7 per cent predicted growth in the economy, this further illustrates a very tough trading environment for the leisure and hospitality sector, which employs over two million people and adds £19 billion to the UK economy every year.

“Operators need more help than they are being offered in this budget to help lead the economy out of recession and creating local jobs at a time when national unemployment levels are so high. In provincial areas especially, the hospitality sector should be better supported in keeping jobs alive and therefore helping to sustain the economy.”

Enterprise Zones

The budget does however outline the introduction of 21 Enterprise Zones, within which businesses could be legible for up to 100 per cent business rate reduction over a five-year period.

These zones will appear within the following ten Local Enterprise Partnership (LEP) areas: Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; and Derby, Derbyshire, Nottingham and Nottinghamshire.

A further Enterprise Zone will also appear in London, the location of which will be down to the Mayor Boris Johnson to decide.

The budget also introduces a 30 per cent income tax relief in the Enterprise Investment Scheme, which will help to attract investors in small businesses.

“With bank debt all but gone for many, raising cash by selling equity in the answer and this tax relief will help,” added Sheehan.

The Treasury’s delay in increasing Air Passenger Duty should also have a positive impact on the level of inbound tourism, helping to boost business for the hospitality industry.

Richard Hathaway, head of Travel, Leisure and Tourism at KPMG, said: “It may help bring business and leisure passengers to the UK, filling hotels beds, restaurants and tourist venues. Beyond this, there wasn’t much in the budget for hospitality and leisure businesses in terms of increasing domestic consumers’ spending power or mitigating companies’ significantly increasing input costs.”

Too little too late?

The increase in alcohol duty aside, the budget has delivered some steps in the right direction for small businesses, although some believe the government could easily have done more to alleviate pressure on the industry.

“It was important a Budget heralded as being pro-enterprise focused on easing the dual burdens of tax and red tape – two of the biggest barriers to business growth and job creation facing small businesses. In that sense, we weren’t disappointed and this was certainly more than just a nod in the direction of UK SMEs,” said Phil Orford, chief executive of the Forum of Private Business.

“However, while there have been some definite steps in the right direction the Government could have gone further in reducing taxes and making the tax and regulatory systems more proportional to all small businesses so that they incentivise entrepreneurship rather than act as a barrier to it.

“In summary, there are some good short-term measures here but more radical changes are required over the longer term. The lessons of history show that you achieve rapid, widespread small business growth – and therefore economic growth - by removing entrepreneurs from the stranglehold of tax and red tape as much as is practically possible.”

Next week BigHospitality will be speaking with operators from across the hospitality industry to find out how the budget will be directly affecting them.

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