Calls for VAT to be slashed as one-third of hospitality firms at risk of failure

The cost of doing business crisis was cited by groups representing huge swathes of the hospitality and brewing sectors yesterday as 35 per cent of respondents said they expect to be operating at a loss or unviable by the end of the year.

The survey, conducted by UKHospitality, the British Beer & Pub Association, the British Institute of Innkeeping and Hospitality Ulster, underlined the impact of rampant inflation on consumer confidence, with 77% of operators stating they had seen a decrease in people eating and drinking out, and 85% expecting this to decline further.

Some 89% of respondents said they were either not confident or pessimistic that the current levels of support offered by government will protect the industry in the next six months – sparking fresh demands for ministers to slash the rate of VAT applied to the industry and for relief from business rates.

Asked how government could meaningfully support the industry, Leon Thompson, executive director of UKHospitality in Scotland, called on Chancellor Jeremy Hunt to cut VAT when he presents the UK Government’s fiscal plans later this month.

Mr Thompson said: “UKHospitality Scotland, alongside colleagues in London, has long campaigned for the UK Government to reduce the rate of VAT for hospitality businesses. Right now, a reduced rate of 10% (from 20%) is vital for our businesses to give them financial headroom and boost consumer confidence. The case to deliver a reduced rate of VAT is compelling, enabling hospitality to keep delivering economic renewal and jobs in every community across Scotland. The Prime Minister certainly supported hospitality as Chancellor during the pandemic and we are making the strongest case for support to the new Chancellor.”

In a joint statement, UKHospitality, the BBPA, BII and Hospitality Ulster, said uncertainty over rising inflation, future regulation and staffing concerns have caused a crisis among operators. The Q4 Hospitality Members’ survey found that operators’ net confidence in their businesses had plunged to -42%, 15 percentage points lower than during the pandemic. Net confidence in the sector has fallen to just two percentage points above the pandemic nadir, at -64%.

The groups said: “The results clearly lay out the stark situation facing hospitality businesses, with many on the brink due to the cost of doing business crisis.

“The vulnerability of the sector due to soaring energy costs, crippling rises in the cost of goods and dampening consumer confidence is on full display in this survey and if urgent action isn’t taken, it is looking incredibly likely that we will lose a significant chunk of Britain’s iconic hospitality sector in the coming weeks and months.”

Mr Thompson told The Herald that the predicament facing the industry in Scotland is “at least as grave as elsewhere in the UK, with some specific and deeper challenges facing our businesses”.

He pointed to the recent Hospitality Market Monitor from CGA and AlixPartners, which showed pubs and restaurants in Scotland are closing at nearly twice the rate of those in England. “The rural nature of many businesses adds additional costs at the best of times,” Mr Thompson said. “In cities we have not seen the return to work of office workers that urban businesses need, nor a significant uptick in business travel that buoyed many city centres pre-pandemic. Scotland may well be trailing other UK towns and cities in this respect, given the high number of public sector workers here and the lack of a strong message from the Scottish Government encouraging people back to the office.”

He added: “With Scotland darker and colder for longer the energy crisis is already hitting our businesses harder. Some members have already closed until the spring or have reduced service for the autumn and winter in order to save on crippling energy costs.”

Emma McClarkin, chief executive of the Scottish Beer & Pub Association, warned that “more businesses will continue to close in the weeks and months ahead without a sizeable intervention from Government”.

Ms McClarkin said: “The new PM has an opportunity provide a lifeline to the sector by providing targeted support in the form of a VAT reduction, a freeze in alcohol duty and continued support for encouraging staff to work in breweries and pubs, whilst the Scottish Government could provide a massive boost by reducing business rates for the remainder or this financial year and next. The upcoming festive trading period and winter World Cup might give a much-needed boost – 10% of annual beer sales are usually made in December, so it will be a vital month for pubs but any uptick in trade will not cancel out the increased costs in energy, across the supply chain and shortage of staff. One thing is certain, we urgently need government support to avoid business closures.”

Ms McClarkin also pointed out that the industry in Scotland was facing “added burdens”, noting that firms in Scotland (beyond small firms receiving relief through the bonus scheme) were again paying full business rates, while there continues to be relief of 50%, up to a total of £110,000 per business, for retail, hospitality and leisure concerns in England. She also highlighted that Scotland would see the introduction of the deposit return scheme and tied pubs code over the next 12 months.

“The Scottish Government are also exploring several other measures which would likely add cost to doing business pubs and brewers, such as restrictions on alcohol advertising and introducing charges for single use cups,” she added.

Mr Thompson said: “We continue to call on the Scottish Government to provide support in the form of business rates relief. This is now necessary to safeguard the immediate future of hospitality. UKHospitality Scotland is also pushing for reform of this tax which sees our businesses pay much higher rates than business in other sectors because of the way rateable values are calculated.”