The trade body says the cap will leave many mid-sized hospitality businesses facing full rates bills in July, little more than a week after they are expected to be able to fully reopen without restrictions under the Government's roadmap.
In his Budget, the Chancellor announced that the current business rates holiday for the sector will be extended through to the end of June, and then be discounted for the remaining nine months of the financial year by two thirds, up to a value of £2m for closed businesses.
It means that many medium and large-sized restaurant and pub groups, which typically pay well above £2m in business rates, will be slapped with a bill that could, according to UKHospitality, force them to 'prioritise paying tax over paying wages'.
“The Government must look urgently at the arbitrary £2m cap imposed on business rates relief in Wednesday’s Budget," says Kate Nicholls, chief executive of UKHospitality.
"This will see many mid-sized businesses facing full rates bills in July, just days after reopening. This limit on support for hard-pressed hospitality businesses is deeply damaging and could threaten the survival of jobs and businesses in the sector, as mid-sized companies are forced to prioritise paying tax over paying wages."
It comes after confirmation yesterday (4 March) that the State Aid cap has been increased from £3.5m to £10.9, giving larger hospitality businesses greater access to Government-backed grant schemes such as the new £5bn 'restart' grants.
The cap is a legacy of the UK’s participation in the EU State Aid scheme pre-Brexit, which controlled the way governments could dish out subsidies to companies.
Having now left the EU, the UK has set out plans for a new State Aid regime, but has so far largely retained rules inherited from Brussels.
“The increase in the value of subsidies permitted to businesses is a positive move by Government and will allow more businesses to access the grants that they so desperately need," adds Nicholls.
"While this cut-off means that some businesses will continue to miss out on parts of the funding that Government has announced, it is a big step forward and provides certainty for business. This increase must be communicated to local authorities urgently to ensure that funds are paid out. Government could go further and explore uncapped grants in respect to Covid-19 in line with EU subsidy rules.
"We urge Government to take the same pragmatic and sensible approach to rates relief as with subsidies and review their approach on business rates support."