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Hospitality hit by £3.4 billion Budget hangover

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Significant increases to payroll costs and business rates taking effect now jeopardise crucial investment in the hospitality sector.

Hospitality is a people business.

Failure to tackle costs on hospitality businesses in the Budget means that the investment needed to deliver forecasted industry growth of 6% a year is at risk.

Almost two-thirds of the sector’s annual £5.4 billion investment of growth could be diverted into paying the new payroll and business rates costs.

Increases to the National Minimum Wage and National Living Wage will see the sector’s wage bill increase by £3.2 billion. Our sector is reliant on our workforce, and employment costs make up over half of our operating costs – we pay £40 billion in wages and employment taxes.

Increases to business rates add up to £224m. The tax on property heavily penalises community-based businesses like ours.

We’re calling on governments to rebalance the costs that hospitality businesses pay and reduce its cost burden so they can make the investments needed to grow, creating communities in which people want to live, work and invest. 

The three quickest levers governments can pull:

  • Fix business rates – replace short-term solutions with a permanently reduced business rates multiplier for hospitality, leisure and high-street retail sectors at a rate of 30 pence in the pound.
  • Employment costs – support businesses to introduce the record increase in the National Living Wage by temporarily reducing the rate of employer National Insurance Contributions and by setting a sustainable long term path for the minimum wage.
  • VAT – reduce the rate of VAT on hospitality, leisure and tourism to 12.5%, returning to the effective policy during the pandemic and matching the average of our continental competitors.

Every day, hospitality is serving Britain. It’s serving the nation with good food, drink and experiences, as well as contributing £140 billion in revenue, £54 billion in tax receipts and providing three and a half million people with jobs.

All of those benefits to Britain, our lives and communities are put at risk by the £3.4bn Budget hangover hitting the sector today.

Businesses can’t find £3.4 billion easily – that’s the cost of a billion cups of coffee. The money that they want to put towards investment in growth will have to be spent keeping their doors open.

Our sector firmly believes in paying people a good wage that reflects their value and importance to what we do. But we need healthy and profitable businesses to do that, supported by regulation that doesn’t penalise a community-based sector.

Governments across Britain have levers they can pull to help businesses keep serving Britain. They can, and should, fix business rates, ease employment costs and reduce VAT. I would urge them to pull these levers quickly.

Kate NichollsChief Executive, UKHospitality