Thursday 1 October 2020 7:00 am

Why the government must give more support to London’s hospitality sector

Marvin Rust is head of tax at Alvarez & Marsal Taxand UK.

Hospitality and tourism have felt the force of Covid-19 like no other sector. Green shoots started to emerge during the summer months, as Eat Out to Help Out, a staycation boom and the warm weather put much-needed cash in the registers of hotels and restaurants across the UK. 

While London remained quiet, there was some cautious optimism that the industry could emerge battered, bruised, but largely intact for a brighter future.

Fast-forward to now, and the change in seasons brings with it a turn in fortune for many businesses, as the Prime Minister imposes new restrictions to tackle the spread of the virus, while the chancellor attempts to gradually wind down the furlough scheme. This perilous combination risks undermining a fledgling recovery and will push many businesses back onto “life support”.

Nowhere is this more prevalent than in London. Demand for hotels, restaurants and casual dining outlets has collapsed since March — as many readers will have experienced first-hand.

In the City, those that can are being encouraged to work from home again. Conferences, meetings and awards ceremonies which would usually guarantee a steady flow of guests and corporate bookings remain cancelled, or at best held virtually. Just last week, Whitbread announced it will be shrinking its Premier Inn workforce by 6,000 people, while Lloyd’s warned cancelled events could cost the insurer up to $340m.

Read more: More than 100 pubs and restaurants warn PM of ‘bleakest of winters’ without urgent support

With more painful economic restrictions plausibly on their way in the coming weeks, and as venues brace themselves for a lean festive period, the government must consider more radical, targeted support. The extension of the five per cent VAT rate for these sectors is a good start — but does not go far enough to support the 2.4m people they employ, especially with consumer demand and confidence in the doldrums.

For hotels, the government could help by recognising the importance of international business travel, by not only lifting or reducing quarantine measures as early as possible but also establishing clear principles around the timing of these measures, which would allow businesses to plan and take action. It should consider regional corridors to cities like New York to drive business and tourism flows: Heathrow is standing by with the facilities already in place.

Conferences and meetings — key to many hotel business models — could also be supported by an incentive as simple as a tax credit, while further changes to business rates or other bespoke measures would be hugely welcomed. 

Without this vital support, rising unemployment is a critical concern. The Office for Budget Responsibility estimates that up to 20 per cent of those on furlough could be made redundant, taking overall unemployment levels up to 12 per cent. The chancellor’s Job Support Scheme will help — yet its success assumes that businesses will be able to justify employing staff even on a part-time basis, based on demand for their services. This is surely acknowledgement that not all will make it.

While the government has a fine balance to strike between economic prosperity and the health of the nation, ministers should be focussing urgently on building consumer confidence to stimulate demand and drive much-needed spending into the economy. So it’s surprising that the chancellor missed a valuable opportunity to reassure the British people about their personal finances, to confirm that widely-anticipated tax rises were not imminent to repay the Treasury’s unprecedented spending.

Repayment must be considered more as a sum spread over the longer-term, much like our borrowing to fund the World Wars. Above all, policies that encourage a faster rate of GDP growth will facilitate this repayment.

The pandemic is likely to be a feature of day-to-day living for some time yet, with the true long-term impact unknown. Though there will be challenging times ahead, a strategy which innovates where necessary, takes bold, decisive action to support sectors which need it most, and prioritises consumer confidence would help keep the hospitality sector and the economy afloat.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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