Yesterday (3 March) Rishi Sunak unveiled a number of measures to help stimulate the economy and aid struggling businesses, including some targeted specifically at the hospitality sector. These include an extension to the business rates holiday through to the end of June, and hospitality and leisure businesses able to receive up to £18,000 in a new Restart Grant being introduced from next month.
VAT applied to food - both eat in and takeaway - accommodation and attractions will remain at 5% for a further six months to 30 September, after which it will rise to 12.5% for another six months. Alcohol duty will be frozen for a further year.
“The combination of the restart grants, VAT reduction and business rates holiday extension is a powerful cash injection into the high street, which small, agile businesses are well-placed to take advantage of,” says Helena Hudson, founder of the Real Eating Company.
VAT reduction extension a mixed bag
While the industry has welcomed the extension to the VAT cut, many argue that it does not go far enough to support the sector.
“The VAT cut is welcomed but ultimately this last year has shown how low margins in hospitality are (between 3-7%) as it’s an industry that’s labour and tax heavy,” says Aktar Islam, chef-patron at Opheem in Birmingham.
“I would welcome ongoing discussions to agree that business rates need to be re assessed long term and a lower rate of VAT for fresh food businesses.”
Jack Stein, chef director Rick Stein Restaurants, has also welcomed the move. “The hospitality specific changes like the VAT extension and then a reduction to 12.5 % will be very helpful as we look to get on with reopening and trading again,” he says.
However, with many restaurants, pubs and hotels unable to reopen until mid May, there will only be a four-month window of a 5% VAT rate, which some believe is not long enough.
“With regards to the VAT cut extension and cut in business rates, of course that is of huge help to us, however it would have been far more useful to have this running throughout the whole of 2021,” says Stuart Procter, COO at The Stafford Collection.
“Our London venues in particular will take a long time to get back to the same levels of trade as seen in early 2020 as they are so dependent on international travel.”
Luke French, co-founder of JÖRO restaurant in Sheffield, welcomes the extension to the VAT cut “during closure and reduced capacity opening” but also believes it might not go far enough in the longer-term. “[I] would like to see this relative to restrictions being removed,” he says. “If not, then review of this [in the] longer term is required.”
Salima Vellani, founder and CEO of Absurd Bird, meanwhile, describes the cut as “simply a short-term prop”. “Most of the sector are SMEs, for whom rents, and business rates are the biggest drag on their profitability,” she says. “With 50% of businesses facing closure, most would prefer rent support and an overhaul of the business rates system.”
Furlough extension "step in the right direction"
The Government’s extension yet again of the furlough scheme has also been welcomed by the industry, despite the scheme still costing businesses money each month.
“The extension of the furlough scheme is terrific and will certainly assist moving forward, as we begin to slowly open up the businesses,” says Procter. “We've got a long way to go, however it's great to see support continuing from the Government as we hopefully come out the end of this crisis.”
Marcos Fernandez, managing director at Iberica Restaurants and Arros QD, also supports the move. “The extension of the furlough will allow the labour flexibility needed as consumer confidence is recovered,” he says. “It is also long enough to allow for the still uncertain short term.”
Adam Jones, founder of Tattu Restaurants, describes the extension as “a step in the right direction” and says it gives the business some flexibility to bring its teams back to work to prepare for reopening.
“However, we’re still incurring costs of around £70,000 per month while we remain closed,” he says. “It was disappointing to see no further mention of the Furlough Retention Bonus, which was a level of support that many businesses had been relying on to offset some of the costs incurred by the furlough scheme.”
Criticism for the budget
The Chancellor’s budget has, however, been met with criticism for not going far enough to support the hospitality sector and for addressing some of the key issues that businesses still face, such as unpaid rent.
“Unfortunately, the budget announcement did not fully live up to the expectations and the hype generated by the Chancellor,” says Mohammad Paknejad, co-founder of Nutshell restaurant in Covent Garden.
“As encouraging as it was to see him extending the VAT cut; it was very disappointing that he decided against extending the business rate holiday for another year. As he admitted himself in his speech in the Parliament; the hospitality and tourism sectors have been hit very hard and without further support from the government; many businesses might not be able to survive the effects of the pandemic.”
The Government’s moves on business rates in particular have been described by some as falling short of the mark for hospitality businesses.
“I would have liked considerations to long term changes that are required to help hospitality and retail continue to survive and grow,” says Opheem’s Islam. “I would have also liked to see pledges to look at reassessing the business rates for hospitality and retail in order to keep high streets alive.”
“While the extension on business rates relief until June is welcomed, I would have liked to have seen the Chancellor echo the decisions made in Scotland to extend rates relief in full for 12 months,” says Tattu’s Jones.
“This would provide many hospitality businesses that cannot reopen until 17 May with a little more breathing space and an opportunity to build back lost revenues and relieve some of the crippling financial pressure that we’ve experienced being closed for 10 out of the last 14 months.
Fernandez shares his view. “A slightly longer extension to business rates would have been welcomed to build up the cash reserves necessary to be able to honour our lease payment terms,” he says.
The Government has also been criticised for failing to provide clarity on the way forward from the eviction moratorium, which went unmentioned in his speech. As it stands, tenants will need to pay their landlords the whole back-rent they owe on 31 March, when the moratorium is scheduled to end, or face eviction.
“Today’s budget is encouraging for the hospitality sector, but make no mistake, it solves only part of the problem,” says Tony Lorenz, founder of the #givehospitalityabreak campaign to extend the moratorium and to legislate for a government mandated plan for paying back rent. “Tenants will go bankrupt and landlords will be left with empty properties. If simply delaying thousands of bankruptcies is all the moratorium achieves, then it will have backfired.
“Hospitality tenants have traded sporadically, if at all, in the last year. As things stand, on 31 March, the overwhelming majority will have the cash to be able to pay the rent. The hospitality sector needs the chancellor to extend the moratorium, and to legislate for a payment plan for rent owed.”
This issue is especially acute in London, where rents are higher than the rest of the country, according to Victor Lugger, co-founder of Big Mamma restaurant group.
“It is one thing to care for hospitality, another thing to care for London hospitality,” he says in response to the budget. “We have extremely high rents, being one of the most expensive cities in the world, and there has been no long-term government protection, and zero offer to help with landlord negotiations.”
Fernandez believes that once the moratorium ends more restaurant businesses will fail, rendering Sunak’s concessions useless for many. “The ongoing problem of rents due which hang over many businesses and which have not been tackled will ultimately make viable businesses fail through the cash flow when the legal containment is lifted,” he says.
Operators have also renewed their calls for the Government to create a Minister for Hospitality.
“The sector is in desperate need of representation in the cabinet and it’s not clear as to why the government and the Prime Minister refusing understand this,” says Paknejad.
The Real Eating Company’s Hudson echoes this view. “Looking ahead, it would be helpful for the government to listen more to the grassroots of hospitality through a dedicated Minister for Hospitality. Our industry has the potential to harbour the next wave of growth champions, but we need collective support to help bring life and energy back to high streets across the UK in the long-term.”