UK mini-budget: How it will affect hospitality
United Kingdom: Chancellor Kwasi Kwarteng announced a series of tax cuts in a mini-budget aimed at stimulating economic growth.
The series of measures revealed in today’s mini budget come at a time when the UK is facing increase in energy bill against a backdrop of galloping inflation.
Some key decisions announced by Kwarteng that affect hospitality include:
• The basic rate of income tax will be reduced to 19p (from 20p) in April 2023. Tax on the highest incomes will also be reduced from 45% to 40%.
• The 12.5 per cent rise in National Insurance will be reversed from 6 November.
• Corporate tax will remain at 19% instead of increasing to 25%, as planned from April 2023.
• No stamp duty will be paid on the first £250,000 of a property and £425,000 for first time buyers. Kwarteng said it would be a permanent cut, effective from today.
• Low-tax, low-regulation investment zones will be established to accelerate new development. The government is working with regional authorities including Tees Valley, West Midlands, Norfolk and the West of England.
• The unit price on electricity and gas bills will be capped for six months (October 2022 to March 2023) as part of the Energy bill relief program (EBRS).
Hospitality executives and professionals responded to Kwarteng’s mini-budget below.
Kerrin MacPhie, Managing Director, mia:
“The support package offered by the government will reassure those operating in the business meetings and events sector, but for a limited time only.
“With energy prices set for six months, operators can at least now begin to forecast future costs and prices more effectively, while also being protected against dizzying and simply unsustainable cost increases.
“While such interventions are welcome for many, in the absence of a long-term solution, it is essential that these support programs are assessed by government on an ongoing basis, and that government recognizes the sectors in outside of standard industry classification when determining sector-specific support levels.
“We know from the results of our recent survey of 129 industry organizations, which included questions about the cost of living crisis, that rising energy costs are of great concern to the sector. Operating in a highly competitive and price-sensitive market, many have conceded sharply reduced profits which reflect a further pullback from stimulus packages, so these cost savings will prove influential in the short term as we continue to see shootouts. green of the recovery.”
Kate Nicholls, Managing Director, UKHospitality:
“The reduction in NI Employer Contributions (NIC) is great news for the hospitality industry and will help businesses cut costs as they try to return to profitability while facing a perfect storm of financial pressures, including the rise in interest rates, the return of the VAT to 20 per cent, and the frankly unfair system of business tariffs.
“Reducing employee network cards is a great way to ensure people keep more of their money, primarily to pay bills and then to enjoy affordable luxuries like visiting hospitality venues.
“While duty-free shopping for overseas customers is a welcome step in attracting overseas tourists, a much more immediate step would be to reduce VAT for our domestic customers. Our VAT rate is the highest among modern economies, so if we want a globally competitive market, we need lower VAT and a fair alternative to business rates.Without such measures – which would help keep prices low for customers – thousands businesses and many other jobs will be lost.
“Confirmation of the energy and NIC proposals will allow our companies to better plan for their survival. Indeed, today’s announcement includes a number of positive measures that will bear fruit in due course, but more is urgently needed to help struggling businesses survive the winter. There is a clear gap between positive tax plans and the lack of immediate support needed by businesses. »
John Webber, Business Pricing Manager, Colliers:
“It is disappointing that while today’s ‘tax cut’ mini-budget has addressed issues such as income tax, corporation tax, NI and stamp, “elephant in the room” corporate rates have been largely ignored (with some minor exceptions regarding new investment zones), despite the impact ultra-high rate bills have had on businesses in recent years. years.
“Professional fees are one of the biggest expenses for occupiers of real estate. The tax raises around £32bn a year gross (£26bn net) and with rates rising in line with CPI inflation levels for September, which are expected to be around 10%, this could potentially adding another £3billion to the tax bill. if nothing is done.
“Retailers, hotels and other high street operators will review their business plans now for next year and take a hard look at their future business rate liabilities. The Chancellor said he was simplifying the tax system – in which case he would have to simplify business rates – one of the most complicated taxes in the UK today. He can start that by ensuring that next year’s rate bills will immediately reflect the lower rents we’re seeing in the market right now, urging businesses to keep or expand space, and real estate investors to invest in the sector across the UK.
Rajeev Shaunak, Partner, MHA:
“The energy crisis eclipses all other concerns in the hotel industry. Tax cuts are all well and good, but the benefits won’t help pubs, restaurants, cinemas, theaters and the like get through the winter. The energy price guarantee for businesses, which was fleshed out earlier this week rather than today, could help businesses stay afloat for a while, but unless more is done, many will be swept away over the next six months. The energy price guarantee for businesses should have been for 12 to 18 months, not six.
“It must be recognized that any strong and clearly defined measure (preferably in the next 12-18 months) will have to be repaid at some point, but it is important to overcome the dangerous period first.”
Michael Clitheroe, General Manager, Balmer Lawn Hotel:
“The initial gamble of the government’s energy crisis strategy, EBRS, is being widely welcomed across the hospitality sector by businesses of all sizes as they struggle to cope with runaway increases in wholesale gas costs. With prices over the past six months falling from 15-20p per kwh to around 70-80p per kwh, it means businesses had to take on more debt at a time when many couldn’t afford it or face closure certain.
“In short, the decision to cap energy at £211 per megawatt instead of the projected expected cost of around £600-700 per megawatt will be seen as a lifesaver for many. The government has clearly listened to the hospitality sector after facing years of sustained setbacks from Covid, Brexit and most recently the cost of living crisis.
“While the support is meant to stabilize spending for many businesses in the most critical months, and in turn boost consumer confidence in their own spending this winter, the program is fundamentally too short-term with just six months of relief. and only serves to kick the box further down the road.Government must continue to listen to the sector by revising immigration policy for EU nationals; grant six-month work visa months to two years, reduce VAT to 5% to allow reinvestment in our own medium and long-term sustainability programs and, where possible, work with the sector to provide subsidies to improve energy efficiency or subsidize the market for energy in the longer term until the country is more self-sufficient in energy production.