14 March 2023

Hotels Group – Budget

It is a challenging time for hotels, research from CGA and AlixPartners, notes that in the UK there were 197 less hotels in December 2022 than in December 2021. Across all of hospitality, there were 1,611 less outlets by year end.

This had been noted in a letter from UKHospitality, a representative group for the hospitality industry, which counts 740 members and speaks on behalf 125 hotels and accommodation offerings, to the Secretary of State for Business, Energy and Industrial Strategy. This letter was jointly written with the British Institute of Innkeeping, the British Beer & Pub Association and Hospitality Ulster. The letter highlighted that 1 in 3 of these group’s members were at risk of business failure in the next 12 months and chief amongst their concerns were energy costs. They asked for increased OFGEM enforcement and to allow renegotiation of energy contracts agreed during 2022.

Some of these concerns have now been carried through in a submission, made by UKHospitality, to the government in advance of the 2023 Budget on 15 March.

Their submission calls for:

  • A new lower business rates multiplier,
  • Minor, short term immigration reforms, to counter labour shortage,
  • Introduce a temporary, reduced rate of VAT,
  • Reform the Apprenticeship Levy, and
  • Directing OFGEM to intervene in the non-domestic energy market and instruct suppliers to
    renegotiate inflated contracts.

Currently, if an apprentice earns less than £50,270 a year and is under 25 years old, then their employer may not need to pay National Insurance contributions. The submission calls for reductions to National Insurance contributions to be extended to those over the age of 25, which, it is hoped, would lessen the cost of employment in the industry.

The Chief Executive of UKHospitality, Kate Nicholls, has stated,

“It’s a red-letter day for hospitality and one that we hope will begin to tackle the three root causes of price inflation in our industry: energy, recruitment and taxes.”

Additionally, UKHospitality has coordinated an open letter to the government, signed by 155 hospitality businesses. Signatories include; Hilton UK & Ireland, Hyatt International, JD Wetherspoon, Edinburgh Hotel Association and the Savoy.

The letter, which echoes much of the content of the submission, posits that the hospitality industry “can deliver growth, drive down inflation and contribute towards deficit reduction by delivering investment and economic activity”.

The letter asks for government facilitation of investment in people, places and growth. It notes that regeneration across the country can be achieved by licensing and planning reform and that unnecessary red tape which hinders the industry should be removed. In preventing business failure and boosting employment investment in the industry is a potential counteraction to current inflation.

In April, corporation tax will rise from 19% to 25%. Additionally, the super deduction, which allows companies to claim 130% capital allowance on plant and machinery, will finish in March after 2 years of operation. The Confederation of British Industry (CBI) which represents 190,000 businesses, has described these two events as a double whammy for businesses.

The CBI notes that with the super-deduction, the UK has the 5th most competitive capital investment incentives in the OECD. Without it, the UK falls to 30th, out of 38. The CBI have advocated for an offset to this rise in corporation tax with the implementation of a permanent investment deduction of 100%.

The CBI President, Brian McBride stating:

“With all eyes on the Spring Budget, my sense is that pragmatic business leaders will only wear that hike in Corporation Tax rise if the other sums add up. Without an incentive alongside, then April will just see a damaging hit to UK competitiveness.”

Though opinion is that this Budget may be a placeholder with little reform, the hotel industry is most probably hopeful but concerned.

Our Insights

"As a firm our priority is to provide a continuous, high level of service and we are committed to conducting business as usual during this exceptional time."
Emily Exton, Managing Partner