Hospitality 'left out in the cold' as Chancellor announces sweeping tax cuts

Chancellor Kwasi Kwarteng announced a raft of fiscal measures in today's (23 September) so-called 'Growth Statement', including cuts to income tax and a reversal of the planned rise on corporation tax. 

Increases in duty rates for beer, wine, cider and spirits will also be cancelled; and VAT-free shopping will be introduced for international tourists to encourage more high street spend from overseas visitors. 

Ahead of the statement, hospitality leaders and trade bodies had been urging the Government to further support the industry directly through a VAT rate cut and the reform of business rates, but both proposals appear to have fallen on deaf ears. 

And while elements of the Chancellor's announcement have been welcomed by the sector, many have been left dismayed at the decision to not go further in supporting struggling business.

“Speechless,” Sacha Lord, Greater Manchester's night time economy adviser, wrote on Twitter​​.

“Corporation tax cuts are completely useless if businesses aren’t turning a profit, or worse, closed. These announcements will now mean last orders for thousands of hospitality businesses, meaning mass redundancies.”

In a later tweet​​, Lord added that the Government had sent a strong message to the hospitality industry with today's mini-budget.

“They don't care,” he wrote. “They have just thrown small family run businesses to the wolves.”

Michael Kill, CEO of the Night Time Industries Association (NTIA), which represents some 1,400 independent bars, clubs and live music venues across the UK, said he was 'extremely disappointed' with the Chancellor's announcement.

“It will be seen as a missed opportunity to support businesses that have been hardest hit during this crisis, causing considerable anxiety, anger and frustration across the sector as once again they feel that many will have been left out in the cold,” he said.

More support 'urgently needed' to help businesses survive​

Kwarteng announced that the planned rise on corporation tax from 19% to 25% introduced by the previous Chancellor, Rishi Sunak, would be scrapped. Meanwhile, the basic rate of income tax will be cut by 1p to 19p from April 2023, with the 45p tax rate for top earners over £150,000 set to be abolished at the same time. 

Alcohol duty will remain frozen for another year, with the Chancellor adding that reforms to modernise alcohol duties will also be taken forward and the Government will publish a consultation on these plans. 

It was also confirmed that the Government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up 'investment zones'.

Each zone will offer targeted and time limited tax cuts for businesses and liberalised planning rules to release more land for housing and commercial development.

The Government hope is that these will be hubs for growth that will encourage investment in new shopping centres, restaurants, apartments and offices.

“If we really want to level up, we have to unleash the power of the private sector,” Kwarteng said.

Reacting to the Chancellor's statement, Kate Nicholls, chief executive of UKHospitality, warned there was a clear shortfall between the positive tax plans and the lack of needed immediate business support.

She said: “The stated objectives of boosting growth and tackling inflation rightly put business at the heart of the Govt’s agenda, but today’s measures will take time to take effect.

“The Chancellor committed to making the UK a globally competitive tax regime, yet overlooked two obvious levers to achieve that, through lower VAT and business rates reliefs.”

Nicholls added that while tax free shopping for overseas customers is a welcome step to attract overseas tourists, a far more immediately impactful step would be to reduce VAT for domestic customers.

“Our VAT rate is the highest among modern economies, so if we want a globally competitive market, we need lower VAT and an equitable alternative to business rates. Without such measures - which would help to keep prices down for customers - thousands of businesses and many more jobs will be lost.”

Mixed reactions​

The Government already announced earlier this week that it will provide a discount on wholesale gas and electricity prices for all non-domestic customers through the new ​​Government Energy Bill Relief Scheme​​, which will cut prices for an ‘initial’ six-month period.

The scheme, revealed by the Department for Business, Energy and Industry, will see wholesale prices to be fixed for all non-domestic customers at an expected rate of £211 per MWh for electricity and £75 per MWh for gas.

Nicolas Burquier, managing director of Pizza Hut Europe & Canada, said it was great to see the Government acknowledge and act on the significant pressures facing the UK hospitality sector.

“Combined with the recently announced support on energy bills, the tax changes and investment zones unveiled today, all will offer some much needed short-term respite for many hard-pressed restaurants and takeaway owners like our franchisees as we head into the winter,” he said.

“While there’s more to be done, particularly around rising supply chain costs and an endemic labour shortage crisis - we look forward to continuing to work with the Government to ensure that our franchisees, and the wider hospitality industry, receive the sustained support it needs as the sector looks to recover from current setbacks.”

Others, however, are more pessimistic.

Steve Alton, CEO of the British Institute of Innkeeping, commented: “Today’s announcement by the Chancellor does not address the vulnerability of our members’ pubs in every community. The energy price guarantee, whilst welcome, will see most pubs at least doubling their energy costs from last year in addition to the inflationary pressures on their costs of doing business. 

“We are hopeful that a number of his measures will support consumer confidence and maintain demand at this now critical period of trading. His recognition of too many barriers to enterprise must now also translate into radically reduced regulation allowing our members to trade fully and freely alongside delivering a significant reduction in the ongoing disproportionately high business rates that our members pay.”

Alex Reilley, chairman and co-founder of all-day dining restaurant group Loungers who has long been arguing for the Government to do more to support hospitality firms across the board, wrote that regrettably he wasn't surprised by the lack of direct support in today's mini-budget. 

“In Sunak we had a [Chancellor] who understood and championed our sector,” he said on Twitter​​. 

“With him gone we’re now back to a government that think hospitality is a sector for those that should have tried harder at school.”