UK: Rishi Sunak, chancellor of the exchequer, announced major VAT cuts yesterday to promote recovery in the hospitality sector.
This decision has drawn a variety of reactions from industry figureheads, many of whom praised the chancellor for the opportunities the changes provided for the industry.
Giles Fuchs, owner of Burgh Island Hotel, said: “Today’s announcement will increase morale for hospitality businesses and their customers across the country. As a major source of UK employment, as well as GDP, it is excellent to see the government commit to a sector which serves as the lifeblood of many local economies across Britain. For the last few months, many of us have been missing the chance to escape, instead being tethered to our homes. These new measures allows businesses to offer those experiences that have in recent months been denied to us.”
Jonathan Hubbard, head of hospitality EMEA at Cushman & Wakefield, said: “We welcome the Chancellor’s announcement today with measures to help the UK hospitality industry. The sector has long been campaigning for a cut in VAT to create a level playing field with other European destinations so whilst it is a positive step now, it needs to be seen as part of a longer term initiative and not just a short term impetus to counter some of the impacts of the COVID-related lockdowns. “
Carine Bonnejean, managing director for hotels at Christie & Co., said: “These new initiatives are a clear acknowledgement from the government that the hospitality industry is an essential pillar of the economy. Even though these measures are likely to just be temporary, they provide a much-needed boost for one of the sectors hardest hit by the pandemic, bringing the UK’s hotels scene in line with the rest of Europe’s.
“This is great timing for the industry, as hotels can look to really capitalise on the summer season, and the booming popularity of staycations. Enticing guests to hotels and spending money locally over the next two months will be critical for the industry, and any incentive to do so will possibly save hundreds of businesses from distress – not just hotels but also dependent businesses who directly benefit from tourism (suppliers, attractions, bars and restaurants, shops etc.).”
Others criticised the policies for not doing enough to holistically support business, in particular with regard to food.
Alison Horner, indirect tax partner at MHA MacIntyre Hudson, said: “The emergency VAT cut is great news for travel and tourism but sudden VAT cuts always raise substantial administrative issues. Businesses must get on top of their preparation. In this case any premise serving alcohol will have to re-programme its tills to deal with three different VAT rates: one for alcohol at 20%, one for cold take-away food at 0% and 5% for everything else.
Richard Lake, associate in leisure and hospitality at Royds Withy King, said: “Whilst the larger chains will be well placed to prepare and market themselves over the next three weeks, independent restaurants may not – and it is those independents that play a pivotal role in our local communities. Independents may be able to pivot more quickly in terms of their offering, but the three-week lead time for this scheme will play into the hands of better resourced chains. The question is how many will survive the next three weeks to take advantage of diners’ and government’s hospitality.”
James Allen, director of Walker Crips Property Income Ltd, noted: “When former Chancellor Osborne touted his change to Stamp Duty, there were concerns from the market about a spike in transaction completions before the rises came into effect, followed by a dramatic slowdown with tax takings falling in relative terms. All of these things subsequently happened.
“We now have a new policy that looks like history repeating itself. The Stamp Duty ‘holiday’ is likely to increase transactions in the sub-£500,000 market, adding liquidity and volatility into an already liquid part of the market. Tax take will obviously fall and, at the end of the holiday, transactions are likely to slow significantly again, risking price volatility at a time when the market is craving stability.”
Many noted the way these changes will affect workers in hospitality in particular.
Neil Pattison, director at Caterer.com, said: “While these initiatives are hugely appreciated, a real risk in the longer term is that too many highly skilled, talented workers will be forced out of the sector as furlough ends. Around 50% of hospitality businesses have yet to reopen, and revenues for the sector are expected to be around 60% down this year.
“As the UK’s biggest hospitality jobs site Caterer.com reflects job activity in the sector, and at the height of lockdown jobs posted dropped from 18,000 to 1,000.”
Jane Longhurst, chief executive of the Meetings Industry Association, said: “The Meetings Industry Association welcomes the Chancellor’s support to the hospitality sector in today’s summer economic update by reducing VAT to 5% on food, accommodation and attractions, as part of the government’s plans to kickstart the UK economy. As once again the events sector that contributes £70billion to the economy supporting over 700,000 highly skilled jobs wasn’t noted specifically, we await further clarification as to how or whether the gesture will be extended to business meetings and events.
“While we recognise that the government’s furlough scheme cannot be extended indefinitely for all, it was extremely disappointing to hear that there will be no exceptions – particularly for those sectors in most need. Instead it will finish for all on 31 October, which is another blow for our sector.”
Those working in the construction and building sector noted a further divergence in opinion, with some noting that the decision is not enough time for construction firms.
Russell Gardner, head of real estate, hospitality and construction at Ernst & Young LLP, said: “The cut in VAT will be widely welcomed in particular, although it will be interesting to see to what degree the reduction is passed onto consumers. The ‘eat out to help out’ voucher scheme is particularly innovative and represents a unique direct intervention to stimulate consumer demand in the hospitality sector. However, we note continuing concerns around the level of demand during the “back to work” months of September and October, when furloughing support will be being phased out.
Chris Denning, partner at accounting firm MHA MacIntyre Hudson, said: “The time period of the stamp duty relief announced by the Chancellor, from now until 31 March 2021, is relatively short. It gives little opportunity for house builders to use the reduction to inform strategic decisions on construction plans beyond the next nine months. The current fall in house prices may also encourage people to sit tight until the market recovers and there is huge uncertainty around job security.
“This policy will likely need extending in order to have real economic impact.”