As we approach this year’s Budget, almost all quarters have given their thoughts on the best way to revive the hospitality sector. Most talk about some sort of VAT cut: Tom Kerridge has led the charge calling for a 20-10% reduction for businesses of all sizes, and many more have added to the conversation, suggesting their own fixes.
Tommy Banks is one of the latest to enter the debate, and his suggestion is particularly interesting. Banks pushes back against the notion that all restaurants and pubs should receive some sort of relief, and instead suggests a 13% VAT cut – only for businesses with an annual turnover of less than £50m.
I agree with the principle. Sweeping rate cuts that offer relief to every part of the sector regardless of location, type of business, or turnover rarely help those who need it most. In fact, they often hurt the smallest, independent players.
Massive corporations – McDonald’s, Burger King and other large chains – end up gaining pricing power against the independent, five- or six-site owner-operator that’s struggling under business rates, high employment costs, and thin margins. The very businesses that need the most protection end up worse off.
If we want a thriving hospitality sector, we need to offer support across the board.
So, on the face of it, there is a lot to like in what Banks says. It’s a more practical policy suggestion for our current circumstances given it would cost the Treasury a lot less, and puts the local, independent businesses at the centre of the decision making.
There is one area, though, where I would make some changes. Because while it’s true that handing the same VAT cuts to the giants of the sector would end up penalising their smaller competitors, that doesn’t mean we should ignore the problems facing them, too.
A survey from UKHospitality shows us that one third of our hospitality businesses are operating at a loss, and the biggest players aren’t immune. The UK’s top 100 restaurant groups saw profits fall by 44% in the last year – they are struggling with many of the same challenges.
The best of both worlds, then, seems to me a staggered VAT cut that offers the highest levels of relief to the smallest players, and gradually reduces as you work up through growing levels of turnover. The exact numbers and tiering would, of course, need to be based on data that the Treasury has access to – and which I do not – but you might start with a 20% cut for the smallest, and work through to a 5% rate cut for the very largest.
Whatever the specifics, this option is a middle ground between Kerridge and Banks. It would be a relief package that recognises the need for targeted support and the dangers of a blanket approach, but also accepts this reality: if we want a thriving hospitality sector, we need to offer support across the board. The Greene Kings and Prezzos of the country also need to be factored into the fix – something that, currently, Banks’ suggestion doesn’t do.
At the end of the day, there are elements of truth in what both chefs say. And by bringing their suggestions together – combining the best parts of each – I think we arrive at a practical policy that the Government could get behind, and that would offer the right amount of support to the different operators across this industry.
Dean Stevens is partner at accountancy firm HW Fisher.