During a consultation at the House of Commons yesterday (Wednesday 11 December), industry leaders were asked to assess the impact of the bill, which aims to lower the non-domestic rating multipliers for retail, hospitality and leisure firms.
Shadow Minister for Housing, Communities and Local Government David Simmonds said the committee was “aware the hospitality sector is important to the economy”.
However, UKHospitality (UKH) chief executive Kate Nicholls told those in attendance the industry was “overtaxed” when it comes to business rates and “had been for some time”.
“If you look at the system without relief hospitality pays around 12% of all business rates but represents 5% of GDP.
“While hospitality venues can have a high turnover, they are low margin businesses”, she said.
In addition, Nicholls said the bill was “undoubtedly welcome” and a “vital lifeline” for firms but acted as a “sticking plaster”.
She called for a “systemic solution” in the form of a permanent discount to give businesses the “certainty and stability” to invest.
As it stands, the 75% business rates relief will be reduced to 40% next April ahead of systemic reformation, which will result in a £3.4bn hike in bills for the industry, according to UKH.
First step
Small businesses in particular would face “significant increases” to bills next year as they do not have the financial “cushion” afforded by larger firms, Nicholls explained.
“This bill is a welcome first step but the pledge [from Labour] was for root and branch business rates reformation and that’s what high street businesses have been crying out for”, Nicholls added.
She asserted the 20p multiplier rate must be applied to all businesses at both the standard and lower thresholds to the put the industry as a whole on a “more sustainable footing longer-term”.
UKH suggested excluding hospitality businesses with a rateable value more than £500,000 from the higher multiplier surcharge or a clear ministerial direction hospitality businesses will have a zero uplift on current levels, as the bill allows for multiple multipliers above £500,000.
“You have to be able to cover business rates costs before you can open your doors - if you can’t you are not a going concern”, Nicholls told the committee.
However, the chief executive exasperated “any relief is better than nothing”.
According to figures from UKH, business rates account for between 7% and 8% of turnover for pubs, rising from 4% or 5% over the past 15 years. In addition, one in three pubs have no cash reserves, according to UKH.
Nicholls also said the industry was “often penalised” for investing in premises, as a higher turnover meant higher taxes, which she described as a “tax on success”.
To combat these issues, the chief executive called for a longer period between investments made and revaluations being calculated.
In addition, she said adjustments made on capital allowance would further incentivise investment rather than “penalise” operators for investing in their premises.
Nicholls added firms have not had chance to “build back resilience” since the pandemic as rising costs continue to “erode margins” and leave operators between a “rock and a hard place”.
She continued: “Closures due to covid and high levels of covid related debt have been the backdrop against which businesses are trying to recover.”
“Every job lost in a pub is connected to multiple jobs in communities that are dependent on the demand the pub drives”
BII CEO Steve Alton
Meanwhile British Institute of Innkeeping (BII) CEO Steve Alton told the committee pubs were “uniquely disadvantaged”, adding even with business rates relief the financial outlook for the sector was “perilous”.
The CEO explained the 75% rates relief “saved a lot of pubs”, but compounding issues including high energy and labour costs alongside food and drink inflation still presented “challenges” for operators.
Alton added while business rates reformation was critical, the changes to Employer National Insurance Contributions (ENICS) hit the sector “incredibly hard”, particularly with the number of part time employees in hospitality.
In addition, Nicholls said the labour costs were “by far” the biggest issue for hospitality businesses.
Alton continued: “While we pride ourselves on paying above the minimum wage in many scenarios, we have many stepping on points in our trade for the start of careers.
“We pride ourselves or accelerating people forward, but we need a large number of those individuals within the business.”
Alton also detailed research from the BII showed one in four of its members struggled to make a profit and half were just breaking even before the budget.
Post-Budget, 80% of BII members felt their businesses would be “unprofitable” when the measures come into force as margins become “wiped out”.
In addition, one in four feared their businesses would be “untenable” next year and could face closures.
“We will lose some long-term viable businesses through no fault of their own.
“When 80% are unprofitable that might be the straw that breaks the camel’s back,” Alton said.
Some 75% of the organisation’s members have already cut paid hours at their venues and one in three have made redundancies, which would have a “huge impact” on communities, Alton detailed.
He continued: “Most pubs employ around 15-20 people on average, that’s a huge impact on communities, especially for disadvantaged individuals who start their careers without great secondary education but with capability and character. We can give them that professional development.
“Every job lost in a pub is connected to multiple jobs in communities that are dependent on the demand the pub drives.
Moreover, Alton told the committee the pub model was a “very different vehicle” to twenty years ago and provided “so much more” than just “great beer”, helping tackle loneliness and isolation by providing community spaces for people to “connect”.
However, the CEO implored long-term certainty through a permanent business rates reduction was “critical” for hospitality firms to continue to evolve and plan.
“For every £3 spent at the bar £1 goes to the Government and that’s too much, rebalancing that is key as part of this bill.
“We can’t just pass through compound inflation [otherwise] trade will fall off a cliff.
Heart and soul
“Costs have fundamentally changed for pubs, it’s a tight margin business, tighter than it’s ever been”, he explained.
In addition, the CEO stated “rebalancing the overall tax burden” for the hospitality industry would “unleash investment”
Alton said: “[This is] not about profiteering, businesses need to be profitable to invest.
“We want to reduce the tax pubs pay, not because it goes into their bank accounts, but because it will unlock investment and surety.
“Pubs are not a short-term money-making exercise; it is far more purposeful than that.
“Despite challenges many operators are doing very well but they are the outliers.
“It’s the mid pack operators who have been going for decades and had a very long-term viable business that now face some very tough decisions, and we are very concerned.
“We don’t want to penalise operators that are investing their money, heart and soul into these businesses.”
In addition, Alton said the “amazing things” pubs could do were “restricted” as access to “capital” was another “huge issue” for the sector.
Alton also stated increased footfall for pubs meant lower crime and safer spaces with more people “out and about in communities and high streets”.
He continued: “Pubs are busy and at their best [this time of year] but in January, when it gets quiet and they reconcile numbers, I fear we are going to lose a lot of them.
“One in four pubs means we could lose 15,000 venues and they will not recover because they will get boarded up.
“They don’t come back when that happens and then you have a whole rack of associated social issues [within communities].”
Night-time economy adviser for Manchester Sacha Lord echoed Alton, adding “communities suffer when pubs close”.
“A pub is not just a place that serves a pint, a pub is the heart of communities”, he said.
In addition, Lord said he was “more concerned” about closures in the first quarter of 2025 than during the pandemic, estimating 9,000 sites could be lost forever in April due to ENIC and business rates increases.
The “challenging mix” of rising costs and decreased support could add an average of £6,000 to rates bills per business next year - equivalent to pubs needing to sell an additional 60,000 pints annually to cover increased costs, Lord added.
However, Minister of State at the Ministry of Housing, Communities and Local Government Jim McMahon assured the Government “stood with the sector” and was trying to offer “certainty and assistance” to the trade.
He said: “We all accept how important pubs are, not just to the economy but the communities.
“We want them to be able to plan ahead, however there will always be limitations in any Government action as to how far it can go.
“But we believe this is a comprehensive package that gets the right balance between online retailers and those in communities.”
