In a recently published article in the The Morning Advertiser by Lord Smith of Hindhead (30 March ‘Give the Government credit, where credit is due’), he bemoans the criticism the Government has received from the hospitality industry following the Chancellor’s Spring Statement despite benefiting more than anyone else from the largesse of the taxpayer over the past two years.
Sadly, and predictably, he is conflating two issues – the support provided by Government through the pandemic, and the tax landscape in which hospitality operates in the UK.
If hospitality was the biggest recipient of the taxpayers’ largesse in the last two years, it was also the industry singled out by the Government for the worst treatment of any sector in this pandemic. With little or no evidence to support them, various measures were introduced on the hoof ranging from complete closures of hotels, pubs and restaurants and 10pm curfews to substantial meal rules and grounded flights. Through these many constraints hospitality suffered the greatest economic damage of any sector.
Every right to be critical
Rather than being grateful for the crumbs of support handed out (many of which came with restrictions) the industry has every right to be critical of them. Covid grants by and large only went to fund the Employers’ National Insurance contributions that became liable on furlough payments, which were returned to HMRC. On the subject of VAT, to correct the damage caused to our industry’s balance sheets, we would have needed the reduced VAT rate of 12.5% to continue for a minimum of 48 months, even allowing for 100% business rates relief: we actually received a reduction over 20 months. And the 13 days of the ‘Eat Out To Help Out’ didn’t help the damage caused by subsequent shut downs in the winter of 2020-21.
In summary, on the issue of the Government’s ‘largesse’, it is difficult to evaluate the shift in revenues from often closed hospitality businesses to the benefit of supermarkets during 2020 and 2021, but I suspect that it was in fact the supermarkets who were the greatest beneficiaries over the last two years, not hospitality.
The current tax landscape is a separate matter. Hospitality is one of the most taxed industries in the UK. Our VAT rate at 20% is roughly 2.5 times more than our European competitors. Our excise duty rates are now almost 11 times greater than Germany or Spain.
Hospitality and tourism are price-sensitive, and one only has to observe the state of our seaside towns to see the long-term damage that high taxation and lack of competitiveness over decades is causing. It is an inconvenient fact that communities living in seaside towns are demographically more likely to be poorly educated, unemployed, claiming benefits, lacking in ambition and living in multi-occupation housing. This is largely due to the decline in the industries that support seaside towns, mainly tourism and hospitality.
Government has desperately failed
Businesses only need two things from Government: certainty about being able to trade, preferably in a reliable legal framework, and a fair tax system. Everything else is superfluous. This Government has desperately failed on both measures. Our ability to trade was hampered not just by our stop-start lockdown strategy, but by a messy Brexit process and unnecessary barriers to employment talent.
There is a better way: hospitality could be a driver to what is now a desperately needed economic recovery. A lower, fairer VAT rate could be funded by spreading the tax base to include food in supermarkets at say 5%. A fairer rating system would allow property-based businesses to compete with on-line competition without one hand tied behind their backs.
I urge Lord Smith et al to accept that criticism of the Government’s Spring Statement is not motivated by “it’s not enough and is never enough”, but by a lack of a strategy to make the tax system fairer for all and hospitality more tax competitive in particular so that we can create economic growth quicker. If it does that, the Government will deserve the credit that is due.