Analysis

Who are the winners and losers from the Chancellor's 'mini Budget'?

By Stuart Stone contact

- Last updated on GMT

Creative streak: Chancellor of the Exchequer Rishi Sunak has unveiled a £30bn raft of measures including a VAT cut for hospitality alongside steps to boost recruitment and job retention
Creative streak: Chancellor of the Exchequer Rishi Sunak has unveiled a £30bn raft of measures including a VAT cut for hospitality alongside steps to boost recruitment and job retention

Related tags: Legislation, Alcoholic beverage, Beer, Job Retention Scheme, Coronavirus

Chancellor Rishi Sunak has unveiled a £30bn relief package to help the UK economy recover from the Covid-19 pandemic – but what impact will it have on the pub trade's recovery?

In what’s being dubbed Rishi Sunak’s mini-Budget, the Chancellor delivered a Summer Statement to the House of Commons in which he laid out measures including a cut on VAT for the hospitality sector, a job retention bonus and an Eat Out to Help Out discount. 

While reaction to the far-reaching raft of measures from the pub sector has been somewhat mixed thus far, there's little doubting that the Chancellor appears to appreciate the value and potential of the UK's hospitality sector.

VAT cut welcomed – shame it’s taken so long

Sunak outlined a VAT cut on "most tourism and hospitality-related activities" from 20% to 5% for the next six months, which – as far as the on-trade is concerned – will apply to food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.

According to figures from real estate advisor the Altus Group, a VAT cut between 15 July 2020 and 12 January 2021 could positively affect 100,000 business across England and Wales including 40,835 pubs.

"The hospitality sector has long campaigned for a reduced rate of VAT and it is a shame that it has taken the economic damage of Covid-19 to produce a temporary tax cut,” Jon Stevens, tax partner at global legal business DWF commented.

Assuming pubs don't increase their prices, he continued: "However, businesses in the restaurant and hospitality sectors will welcome the reduction in VAT to 5% that will hopefully encourage people to spend money with them while we recover from lockdown."

What’s more, a spokesperson from Heineken UK – whose pub arm Star Pubs & Bars operates in the region of 2,500 pubs – said that the Chancellor’s statement demonstrated the “huge importance of pubs, bars and hospitality” to the UK economy.

“We welcome the reduction in VAT on food to 5%, and strongly support the never been done before voucher for every person in the UK to enjoy a discounted meal out,” the spokesperson said. “This is a huge boost to the sector which will see jobs secured and the hospitality sector revitalised.   

“Pubs are the heart of communities across the UK and without them, there would be a gaping hole in British society.  So once again, cheers Chancellor, for recognising the importance of the sector, as we welcome people back to pubs to 'resocialise responsibly.’”

Wet-let pubs left high and dry?​ 

However, while operators with a healthy income from food sales stand to benefit from Sunak slashing VAT, commentators from the Campaign for Real Ale (CAMRA), the Campaign for Pubs and Greene King were cautious in their praise for the Chancellor amid the lack of tailor-made support for wet-led businesses.

“While a six-month cut in VAT for food served in pubs and the ‘Eat Out to Help Out’ voucher scheme in August is welcomed, we are concerned that pubs have been left behind by the Chancellor’s statement, which contained little support for community pubs,” CAMRA chief executive Tom Stainer commented. 

“It is also disappointing to see no direct support for independent brewers and producers, who will not benefit from a VAT cut that specifically excludes beer and cider. 

“CAMRA will continue to campaign for greater support for all pubs - including those that don’t serve food.” 

While Greene King’s Nick Mackenzie described the VAT not extending to beer as “disappointing”, chair of the Campaign for Pubs and operator of three pubs in York, Paul Crossman, said the measure was “of little benefit to thousands of small, wet-only pubs operating at the heart of their communities”.

“Today’s announcements on VAT and midweek food vouchers will mainly provide a boost for pub chains and large companies operating pub restaurants, but will come as another blow for many independent pubs and licensees, who are already facing a calamitous double whammy of ongoing fixed costs, including rent, with reduced trade and profit,” he commented.

Sector ‘will be extremely grateful’

Discussing the overall impact of the Chancellor’s statement, JD Wethersoon chairman Tim Martin said that he saw Sunak’s measures as a step towards tax equality and hopes they will live beyond their initial six month tenure.

“The pub industry will be extremely grateful to the Chancellor for his financial support over the next few difficult months,” Martin said.

“Wetherspoon has campaigned for years for tax equality between hospitality companies and supermarkets.

“Pubs and restaurants pay 20% on food sales and about 20 pence a pint for business rates – supermarkets pay zero VAT on food and about two pence per pint of rates.

“The Chancellor’s initiatives go a long way to recognising this inequality, albeit on a short-term basis. Hopefully this will become a long-term change.

“Equality and fairness are key roots of a sensible tax system.”

Measures to get workers off furlough ‘positive'​ 

Sunak also unveiled a Job Retention Bonus through which UK employers will receive £1,000 for each furloughed employee who is still employed as of 31 January 2021. He rejected calls to extend the furlough scheme beyond October, saying it would give people "false hope" that they will have a job to return to.

It’s been reported that the measure could cost as much as £9.4bn if every furloughed worker is brought back.

Among other measures​ to help Brits into work, there will also be a £2bn Kickstart Scheme designed to create hundreds of thousands of fully subsidised jobs for anyone between the ages of 16 and 24, claiming Universal Credit and at risk of long-term employment.

UKHospitality chief executive Kate Nicholls described the Government’s revamped approach to job retention and recruitment as “very positive” for the hospitality sector, which saw more than four in every five (83%) business owners furlough at least 90% of their staff during the novel coronavirus crisis according to CGA​.

“Even after the reopening of some venues, we estimate that around 1.5m workers in our sector are still furloughed,” she said. “With revenues likely to be down for the foreseeable future, the support measures to get workers off furlough and back into work will be greatly appreciated.

“Support to retain our workforce with a retention bonus, kickstart employment and bring on trainees and apprenticeships should also be a huge boost to our sector as we begin our long recovery. 

“Businesses have been closed for months and, with the possibility of a difficult winter ahead, support to create jobs will be vital if hospitality is to play the significant role we hope it will in helping boost the economy.”

While Greene King chief executive Nick Mackenzie also praised the Government’s approach to the jobs market, he warned that the sector was “by no means out of the woods” 

“As a leading apprenticeship employer, with a proven track record of helping disadvantaged young people build their careers in hospitality, the new kickstart scheme and the support for apprenticeships are also very welcome,” he said.

Great encouragement or tokenistic gimmick?

Furthermore, in a bid to encourage people to return to eating out, Sunak launched the Eat Out to Help Out scheme which will provide a 50% discount on sit-down meals in pubs, restaurants and cafés across the UK from Monday to Wednesday every week throughout August 2020.

The measure has been met with a mixed response thus far, primarily because many wet-led operators see it as exclusive.

“The midweek voucher scheme feels like an expensive, tokenistic gimmick,” Campaign for Pubs chair and multiple operator Crossman commented. “This money could and should have been invested in meaningful support for all pubs.”

Conversely, Greene King’s Mackenzie described the scheme as “great encouragement for customers to support the nation’s pubs” while the Sustainable Restaurant Association’s chief executive Andrew Stephen, said: “Every family deserves a meal out and the Eat Out to Help Out initiative will help UK hospitality businesses be affordable to all in August.” 

Chancellor nothing if not creative​ 

Giving an overarching assessment of Sunak’s Statement, Paul Newman, partner and head of leisure and hospitality at audit, tax and consulting firm RSM, sees the Chancellor’s mini budget as evidence that necessity is indeed the mother of invention.

“The Chancellor is nothing if not creative,” he said. “The announcement by the Chancellor of a cut in VAT from 20% to 5% for the next six months, alongside the 'Eat Out to Help Out' initiative for August will be hugely welcomed by the sector."

Related topics: Legislation

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