Spring Statement 2022: A missed opportunity to support hospitality

The Chancellor of the Exchequer's Spring Statement has been met with criticism from the hospitality industry, as no significant moves were made to support its ongoing recovery from the pandemic

The spring statement was announced yesterday amid official forecasts predicting that Britain is facing the biggest fall in living standards since records began in 1956. For hospitality, the announcement was a missed opportunity to stimulate growth in the economy.

The VAT for hospitality is set to return to pre-pandemic levels of 20 percent; business rates are set to kick back in, and no support was offered to businesses to combat rising energy costs - many of which are already raising prices and reducing trading hours to counteract the effects.

Peter Borg-Neal, chairman of pub-restaurant operator Oakman Group, described the statement as "unhelpful for businesses," and especially disheartening given that Rishi Sunak had said, just a day earlier, that he was weighing up VAT freeze for hospitality.

While inflation is rising to a 30-year high of 6.2 percent and is forecast to rise a further to 7.4 percent before the end of this year, growth predictions are down to 3.8 percent for the year, (a drop from the original estimate of 6 percent) and only 1.8 percent next year.

Rising taxes and falling living standards

In response to the chancellor's announcements, Paul Askew, chef patron at The Art School in Liverpool, said: “This is a dark and worrying time for the hospitality industry. The chancellor has today spurned a unique opportunity to level up."

"Raising VAT back to 20 percent now is absolutely the wrong time for hospitality in the UK, from restaurants and bars to pubs and hotels, and I know businesses across the land will be deeply concerned about the implications of this.”

The Chancellor's statement wasn't exclusively bad news for hospitality, as the announcement that fuel duty will be cut to 5p per litre will alleviate some supply chain pressures on businesses, and he also pledged to bring in a fully costed cut to income tax from 20p to 19p before the next election in 2024.

But the Office for Budget Responsibility (OBR), the government’s fiscal watchdog, said that the chancellor's tax cuts would only offset roughly a quarter of the tax rises announced in the budget in October.

Meanwhile, living standards will likely fall by 2.2 percent in the next tax year - the largest reduction in a single year, twice as significant as during the oil shocks of the 1970s and 80s.

The lack of support might prove fatal

Kate Nicholls, chief executive of UKHospitality, described the statement as a real setback for thousands of UK businesses, warning that to banish lower VAT rates, which have served as a lifeline for many, might prove fatal.

She said: "Locking in VAT at 12.5 percent would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation."

Steven Alton, chief executive of the British Institute of Innkeeping, added: “While the Chancellor has implemented a number of measures that undoubtedly will reduce the pressure slightly on cash-strapped consumers, the reality for our members is that they have to significantly grow revenues against pre-pandemic figures to even stand still."

"The lack of ongoing support is a further significant and potentially fatal blow to these businesses."

Despite the disappointment, Kate Nicholls affirmed that UKHospitality would continue to interact with the government and that they were bolstered by the recent support for the 12.5 percent VAT from some MPs.

"UKHospitality will continue to work closely with the government to achieve the best possible trading conditions for the hospitality industry and is buoyed by recent support for our 12.5 percent VAT call from a significant number of MPs.”