Chancellor Jeremy Hunt will give his Budget speech on Wednesday 6 March and the on-trade will be desperate for some good news not least the UKH boss.
Nicholls told The Morning Advertiser: “The challenge we’re articulating to Government is that the cost of doing business is just too high and, with a simultaneous cost-of-living challenge, we can’t put up prices or we will see revenues fall.
“Also we’re seeing people not coming out as much or not spending as much.
“It’s driven largely by taxes and regulation that Government is pushing through and the money coming through the front door isn’t enough to cover that and leave headroom for either margin for the smallest businesses or headroom to invest for the larger businesses.”
She explained there is a “perfect storm” where nine out of 10 businesses are failing at the moment and closing, which is driving net closures while medium-sized and larger companies are seeing their ability to invest in anything – whether it’s growth, product or people – is being eaten into by the cost of doing business.
She added there is a 10% to 20% increase in national living wage coming into force in April along with an above-inflation increase in business rates so there will be a further inflation spike.
Policies holding sector back
“We’re setting that out to the Government so if they want to bear down on inflation, if they want to get the economy growing and if they want to see business investment, all three are being held back in our sector at the present point in time because of the policy decisions they’re making.
“So what we’ve asked for is a cap on the business rates increase and a road map to longer term reform.
“We’ve asked for a temporary increase in employer NIC threshold so we can absorb the cost of the national living wage and, crucially, we’ve asked for a cut in the headline rate of VAT to be able to stimulate investment back into people, property and place.”
UKH's 3 critical asks of Government
- A 3% cap on business rates increases – the proposed 6.7% increase to business rates for up to 20,000 hospitality businesses will push yet more businesses to failure. For those that survive, it will simply divert spending earmarked for investment into the higher rates payments.
- Temporary changes to employer national insurance contributions – a cut in the lower rate of employer NICs to 10% and increasing the threshold at which contributions are made by the employer will help businesses manage the increase in the national living wage.
- A lower rate of VAT for hospitality, leisure and tourism – a 12.5% VAT rate is proven to boost demand, generate revenue and keep prices low. It is the single greatest catalyst for growth in hospitality, with 70% of businesses passing through reduced prices to customers.
On which single piece of action the Government could take to help the sector immediately, Nicholls said lowering VAT would be a game-changer.
Asking for a reduction from the current 20% to 12.5%, she said: “It would help us to keep prices low and it would give companies the headroom to get through what will be a temporary blip because we know the economy will start to improve and consumer discretionary spend will return.
“But we’ve got to get through the challenge of April and so therefore VAT would be the single biggest injection. We know it works. It worked when Gordon Brown did it. It worked when Rishi Sunak did it and it would get the economy moving again.
“If you’re talking short-term tactical, the Government needs to look at the business rates issue. I don’t think the Treasury appreciates the fact small businesses in the sector operate from larger premises so they’re facing quite a big increase in bills.
“The Treasury thought they’d insulated them by capping and freezing the multiplier for those in premises below the £51,000 rateable value but half of the sector is above that.
“So capping the increase for them would be helpful.”
Urgent need for rebalance
Nicholls said the business rates system needs a “root and branch” reform.
“We know this is a bigger task,” she stated. “We’ve put forward our proposals to both the Government and the Labour Party.
“The Labour Party has committed to a root and branch reform if they win the next election so the opportunity is there but it needs to be seized rapidly and we urgently need a rebalance.
“Hospitality makes up 5% of GDP but pays 15% of all business rates so we’ve got to have a rebalance between bricks & mortar and clicks & mortar businesses.”
Nicholls also warned labour shortages are still affecting the sector with about 8% of jobs not being filled.
Nicholls said: “We’re doing an awful lot of work across the sector to boost employment opportunities for the disabled, unemployed, long-term unemployed, the homeless, veterans and ex-offenders.
“We’re working flat out to make sure there are pathways into employment. We just need that extra boost to be able to deliver that more rapidly.
“We’ve talked about reform of the apprenticeship levy, we’ve talked about reform of the adult education budget to unlock some of that investment and get people into hospitality roles.
“It just needs that political will to deliver it further but we are starting to see results coming through from the work we’re doing with DWP on that pilot project, looking at getting people job ready and apprenticeship ready.”
The year ahead is one of two halves Nicholls claimed but brighter times await.
“If you look at the forecasts from the Bank of England, even the gloomiest forecast say interest rates are going to peak at a lower level and start to come down. Interest rates and inflation are going to peak at a lower level and start to come down and that will help boost disposable income.
“It will also make Covid-related debt more affordable –that is still a big issue for our sector, people are paying down their Covid loans rather than have being able to invest – so extending the length of those loans, giving some breathing space to get over the worst of inflation and interest rates, would undoubtedly help.
“You can see some positive movement towards the end of this year but we do, undoubtedly, have a very tough time to get through before then, and April will be a challenge for many businesses because those costs are ratcheted up even further in terms of wages and business rates.”
