Coastal Tourism and Hospitality: Fiscal Support

Priti Patel Excerpts

Thursday 22nd February 2024 Westminster Hall

[Selaine Saxby]

I thank my hon. Friend and neighbour for his contribution; it is as if we both speak to the same group! I agree entirely with his contribution, as I so often do. I am very keen that Devon hospitality businesses, right the way across and down the peninsula, can benefit, and that the Minister will hear our asks.

We cannot underestimate the pandemic’s impact on businesses. The hospitality sector came out of covid-19 heavily indebted. I hope that the financial sector can look at what more can be done to support hospitality businesses to repay their debts, which currently stand at £8 billion in bank debt and £2 billion in landlord debt. The pandemic harmed hospitality businesses and made their recovery much more difficult.

Although I warmly welcome the small business rate relief that was introduced in the autumn statement, which provided some support, up to two thirds of hospitality businesses find themselves excluded—not due to generating immense profits, but because they operate in larger premises in high-footfall areas. Consequently, the impending 6.7% rise in business rates and skyrocketing wage costs present a daunting prospect for the survival of many businesses.

While I applaud the Government’s commitment to creating a higher-wage economy, it is crucial to acknowledge the unique challenges faced by hospitality businesses, especially those based in coastal areas like my North Devon constituency, which are often small in scale, seasonal and working to tight margins. These businesses anticipate a 17% increase in staffing costs from April, with 98% of them expressing concern about how to manage the impact of the upcoming national living wage hike. Many of the businesses that should have benefited the most from the small business rate relief actually face wage rises in the hospitality sector that far exceed the business rate relief itself.

We are already seeing hospitality businesses contracting their hours and reducing the number of staff they employ or the hours that they work. Far too many of our pubs are now open at weekends only or cannot find chefs, so have some nights without food service, which reduces their profitability even further.

Although the national living wage hike was warmly welcomed by the hard-working teams who work across our hospitality businesses, it is a headache for business owners, who themselves frequently earn significantly less than the national living wage, due to the extensive hours they work and a reliance on their businesses’ ever- declining profitability to pay their wage. Far too many of our hospitality businesses face a crunch this April. Too many of the sums that we do up here rely on a 35-hour working week. Hospitality is a 24/7 business, and in remote coastal areas with low unemployment, such as my North Devon constituency, many members of staff are also much younger. The increase in the national living wage will hit those businesses particularly hard.

One key ask today is for a cut in the lower rate of employer national insurance contributions to 10% and consideration of increasing the threshold in order to share the burden of this policy between business and Government, but the biggest ask from my hospitality businesses across North Devon—I had the pleasure of chatting to many landlords in some of the fabulous pubs back home during the recess—is because their VAT burden is too high. In the hospitality sector, VAT is significantly higher than it is elsewhere in Europe, putting us at a competitive disadvantage. During covid, we saw huge success from the reduction in VAT for the hospitality sector. In that time, 70% of hospitality businesses benefiting from the VAT cut passed it on to consumers, in order to keep prices low. A hugely successful local pub shared its figures with me. With a turnover of just over £1 million, it is paying 25% in tax just in VAT and employment taxes. That is a quarter of a million pounds going to the Exchequer before payment of bills and wages, and payments to suppliers, are even considered.

Last year, we lost 3,000 hospitality venues in the UK, and I am concerned that if the Government do not take further action to share the burden of this tax cost, we may lose even more this year. Unfortunately, there is one recent case in my North Devon constituency; Broomhill Estate is closing due to VAT costs. I thank Alex Kleiner for all his work and for letting me know how much of an impact a reduction in VAT from 20% to 15% would have made to his business. I heard directly from Alex, a business owner, that there would have been three benefits: a reduction in absolute VAT; an impact on cashflow; and an uplift in footfall because of more attractive pricing, although that is harder to quantify. He said in

“4 out of the past 7 quarters 5% VAT reduction would have completely offset my electricity bill.”

Unfortunately, in this instance any changes to VAT will come too late for such an important landmark in North Devon.

Although I know that it is a big ask, I hope that the Treasury might again consider a reduction in the VAT rate for the hospitality and tourism sectors—to 12.5%—as that would help them to overcome the above inflation increases in tax and the national living wage, avoid further inflationary price spikes and unlock investment. The measure aligns with international standards, stimulating tourism and offering domestic tourists a more affordable alternative to travelling abroad. I am confident that not every publican and hotelier is wrong in telling me that this is the one measure that would help them the most. A cut—even a temporary one—would be a boost.

For so many coastal communities, their tourism industry has changed since the hotels were built in the Victorian era. Many have large properties that may not benefit from all-year-round occupation, particularly in those communities where swathes of the tourist attractions, shops and restaurants have closed for the winter because of the VAT threshold issue. Hospitality businesses rely on space to host people and therefore have larger premises in high-footfall areas. Businesses in the industry will often hit the upper rateable value band at a far lower turnover or profitability than others. The hospitality sector pays 2.5% of turnover on business rates, which is 10 times that of banks and insurers. I hope the Treasury is looking at the introduction of a cap on the increase in the large property business rates multiplier at 3% in England, aligning with the expected inflation rate in April. Additionally, I hope the devolved Administrations in Scotland and Wales pass on the benefits of that relief in full.

[Priti Patel (Witham) (Con)]

I thank my hon. Friend, first, for securing the debate and secondly, for her compelling fiscal case for the reforms that, frankly, are essential. We have been here in recent weeks talking about the same thing. In addition to fiscal measures, does my hon. Friend agree that we need supply-side reforms for coastal communities? Many of our constituents in coastal communities feel isolated. She has spoken about labour market shortages. We need to make sure that we have public services, NHS doctors, education, employment and banking facilities in those communities that serve their purpose, make those places healthy and help them to thrive, therefore increasing the footfall for the hospitality trade as well as the employment market for hospitality.

[Selaine Saxby]

I could not agree more with my right hon. Friend that there are many asks for our coastal communities; I have spared the Minister the rest of mine this afternoon. While I am here, however, it would be remiss of me not to mention alcohol duty. The freeze on that duty at the autumn statement was welcome, but it does not directly help our much-loved pubs, which have reported significant price increases from brewers and other producers despite the freeze. A reduction in VAT would leave the choice to pass on and/or reinvest in the hands of the retailer and not with the multinational brewery in the case of alcohol. I have continuously supported the Campaign for Real Ale’s campaign, as it would play a crucial role in stopping our many vibrant pubs and hospitality businesses going under. Whatever the scheme, a reduction bringing us in line with the clear majority of our European neighbours—permanently or even temporarily—would be a lifeline for our hospitality venues.

While talking about great pubs, I will take the opportunity to highlight The Bell Inn at Chittlehampton, as well as Chittlehampton Village Shop, which serves excellent tea and cake; both are finalists in the Countryside Alliance awards, and voting is now open for anyone who would like to help them along.

The potential of the hospitality sector to contribute to economic growth cannot be overstated. UKHospitality’s economic evidence submitted to the Treasury outlines the conditions required for growth, estimating the creation of 500,000 new jobs by 2029 and an annual growth rate of up to 6%. I hope the Treasury will carefully examine the evidence and arguments presented, recognising the immense potential that the hospitality and tourism sector holds for the UK. By supporting the sector, we not only ensure the prosperity of businesses but contribute to increased tax revenues that fund essential public services.

I am hugely reassured to see the Financial Secretary to the Treasury, my hon. Friend the Member for Mid Worcestershire here today, as he has been to see us and understands so much more about our tourism and hospitality sector, particularly in remote coastal locations such as my beautiful North Devon constituency. I hope that may influence some of those critical Budget decisions.