Autumn Budget: Leisure & Hospitality support to be limited?

As the UK gears up for its first Budget under the new Labour government, the hospitality and leisure sectors will be keenly awaiting any policies to support their operational resilience and long-term growth.

Though slowing inflation has improved operating conditions, worries persist around potential revenue-raising measures in the looming Budget. And while the rate of insolvencies has also begun to ease somewhat, any recovery remains fragile, as demonstrated by wavering consumer confidence.

Both sectors face significant and longstanding challenges, however opportunities for positive change remain.

First and foremost, leisure and hospitality firms will be hoping the Budget provides a boost to consumer confidence – even if only because of greater clarity over near-term tax policy. This is key to maintaining, or growing, revenue, and supporting margins.

But they’ll also be hoping for direct support. The hospitality sector, which plays a vital role in local economies across the UK, is currently grappling with some of the highest VAT rates in Europe.

The standard VAT rate of 20% is a real burden, particularly in times when costs remain high and many consumers are reluctant to splash out on non-essentials. It means many firms have sought to absorb cost increases to prop up demand, cutting into their margins and making it harder to maintain profitability.

In response, industry leaders including Kate Nicholls, Chief Executive of UKHospitality, have been actively lobbying the Chancellor to consider cutting VAT for hospitality businesses.

Focused on revenue raising

They argue that a more sympathetic VAT rate would help breathe life back into a sector that is still recovering from the pandemic, potentially encouraging more consumers to dine out. This could serve as a catalyst for a wider economic recovery, as increased patronage would benefit not only restaurants and pubs but also suppliers and associated sectors.

Another pressing issue is the burden of business rates. Any recovery could be thrown off course when the current business rates relief arrangement ends on 31 March next year, creating a ‘cliff edge’ scenario where the 75% discount, capped at £110,000, disappears overnight.

That will come at the same time as the standard business rates multiplier is due to rise by 6.7%, which will likely rise again in April 2025, further straining the industry. Stakeholders are advocating for a freeze on the multiplier while comprehensive consultations on reforming business rates take place.

A more equitable system could help distribute the tax burden more fairly, allowing hospitality businesses to reinvest in their operations and workforce.

While the Labour manifesto accepts that the current business rates regime creates “an uneven playing field, especially in retail and hospitality” and pledges to “fundamentally reform the business rates system”, there is no commitment to any timescale for this process.

And, given the current focus on revenue raising, it is perhaps unlikely there will be any good news for hospitality businesses any time soon.

Encourage investment

The leisure sector, including gyms, sports facilities and other recreational businesses, faces its own unique set of challenges. Like hospitality, it has experienced financial strain, but it also presents unique opportunities for growth, capitalising on the public’s focus on physical and mental health and wellbeing.

But investment in infrastructure is crucial and the sector needs support to develop high-quality facilities that are accessible to all. With government backing, leisure businesses could enhance their offerings and attract more members, thereby supporting both economic recovery and public health.

Moreover, access to a skilled workforce remains a top concern. With ongoing staffing challenges, there is a call for government initiatives that not only support hiring but also focus on upskilling the existing workforce. This also aligns with the Labour government’s agenda to create more jobs, which is vital for the sector’s resilience.

On the taxation front, the Labour government has committed to cap the current rate of corporation tax, which at least provides some certainty. We can also hope the full expensing of capital allowances will be maintained.

This measure would only encourage both hospitality and leisure businesses to invest in their future, facilitating growth and job creation.