26 May 2022

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Budget measures generally insufficient to save hospitality industry
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Budget measures generally insufficient to save hospitality industry

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The problem is going to be the burden of accumulated debt which is going to bring the industry down

Although welcome in themselves, the chancellor’s measures in yesterday’s budget are not seen as sufficient to rescue the hospitality industry.

The problem gets worse the longer it is going to take for establishments to re-open. That is the problem – they have been closed for so long that every day of further closure is a day closer towards permanent closure. So the pubs and restaurants which can re-open for al fresco service have a better chance of survival because they can start to earn monies to cover overheads that much sooner.

At the back end of the problem are the nightlife businesses which have been closed for the entire duration of the pandemic and are not going to re-open before June, at best.

The lower rate of VAT is not going to prove of much value to businesses which cannot open until May or later and although 12.5% VAT is a concession to the good, the reduction in rate of VAT is not a free grant to the hospitality industry because free competition allows operators to fix their own prices and if an operator decides to pass the reduction on to the customer, as have some, it does not per se enable a business to increase its margins.

The extension of rates relief is a greater help but in England nothing like what is being offered in Scotland and Wales where the extension is for 12 months. The combination of a rates bill and the need to start paying landlords means a significant inelastic cost to hospitality businesses which they have to meet out of current revenue.

With so many licensed premises closing over the past year or so, the overall level of competition is perhaps a little lower but this really is small comfort because what we are seeing is larger and more efficient and well funded groups making reasonable progress in terms of recovery while the smaller independent businesses do not have the muscle and this is why they are falling by the wayside.

Furthermore at the moment we do not know quite how the general public is going to handle re-opening. Signs are that people are keen to get out again but they said that last summer and people did not come out in their droves as was predicted. However, a survey has discovered that people will be more encouraged to go out to dine where establishments are using technological solutions in their ordering processes. The idea of bringing in more technology certainly seems to be gaining momentum.

Until re-opening of any sector begins we shall not know what is going to happen but once opening does start we may well start to see a number of business failures become a reality.

Adrian Leopard 04-03-21

Photo Damir Kopezhanov

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