Autumn Statement fails to address key challenges for hospitality sector

23/11/2023

Peter Davies, Hospitality Client Partner at WMT, the St Albans-based accountancy firm, specialising in hospitality sector accounting, has pronounced the package of measures announced by Chancellor Jeremy Hunt in the Autumn Statement as “disappointing when what was needed was a lifeline for businesses struggling with rising costs”.

In the wake of falling inflation – reaching 4.6 per cent in November 2023 from 10.1 per cent in January but prolonged increases in both the cost of living and the tax burden, the Chancellor outlined his “Autumn Statement for growth”.

Considering how the Chancellor’s measures will impact hospitality businesses, Davies says that there was little in the Autumn Statement to give cause for optimism for hospitality operators burdened by rising costs, ongoing Covid-related debt, and softening consumer demand.

Davies commented that one area for cheer within the Autumn Statement was an extension of the 75 per cent business rate relief for retail, hospitality and leisure businesses. Whilst this extension will not provide additional support, the extension will mean that many will no longer be facing the prospect of hugely increased business rate costs next April. There was no word, however, as to any intention to reform and restructure business rates and address the penalty that applies to many High Street operators including those hospitality businesses at the heart of communities.

The welcome news on business rates will be critical as hospitality businesses face another year of inflation-busting increases in the National Minimum Wage, with the headline National Living Wage rate increasing by 9.8% to £11.44, and applying to employees aged 21 and 22 for the first time. There was further good news for hospitality workers who will see a 2% decrease in their National Insurance Contributions, but the Chancellor did not extend the reduction to the rate paid by businesses, which remains at 13.8%

Commenting on the increases in the Minimum Wage Peter Davies said that “increases in wages and earnings may help the sector in recruiting and retaining staff, but the concern must be that these rises will be unaffordable and lead to reduced hours, lay offs or in the worst case business failures. Unlike other sectors hospitality workers receive additional income from tips, gratuities and troncs meaning that the majority of workers already earn materially over the Minimum Wage”.

The Chancellor also ignored longstanding demands from the sector to consider a reduction in the rate of VAT, which at 20% is one of the highest rates in Europe on eating out and puts the sector at a serious disadvantage when compared to the cost of food in supermarkets. “A VAT cut on food sales in hospitality would be the quickest and most effective way of helping the sector, with the increased margins it would deliver for operators resulting in extra employment and investment, both of which the Chancellor is rightly keen to encourage”.

WMT Chartered Accountants also embraced other aspects of the Chancellor’s 110 measures to achieve sustainable growth. High-growth sectors including technology, sustainable energy and manufacturing will benefit from significant investment from the Treasury, with £975 million being made available for the automotive sector, £520 million for life sciences and £960 million for clean energy manufacturing.

The UK’s smallest self-employed businesses are also benefitting from the Chancellor’s announcements, with the unexpected abolition of Class 2 National Insurance – and a slashed rate of Class 4 NI contributions at 8 per cent.

Anne-Maree Dunn, Tax Partner at WMT, concluded: “Many business owners will have mixed feelings after the Autumn Statement. Understandably, some small businesses may feel the strain of rising labour costs meaning that employers in the sector will need to consider their cash flow carefully to avoid being hit by rising wages and NI contributions. They can achieve this through savings delivered by the business rates relief and by the small business rate multiplier, which has been frozen yet again.

“For any business seeking to optimise their financial position after the Autumn Statement, professional advice is key to weathering the upcoming squeeze and maximising the benefits of new measures.”