The Nov. 22 Autumn Statement delivered by Chancellor of the Exchequer Jeremy Hunt might be regarded as the first page of the ruling Conservative Party’s general-election manifesto.
The United Kingdom must have a general election on or before Jan. 28, 2025, and currently the Conservatives are lagging in the polls.
Hunt’s speech to Parliament contained several pointers of interest to hoteliers, but one absence was a wholesale change to the calculation of business rates, or local taxes, that has long been a call from hotel-industry membership organization UKHospitality and others.
Some in the hotel industry have voiced concern that the statement has not done enough for the sector, notably that business rates have not changed. Though they have been frozen for 12 months, the hotel industry feels that the can has merely been kicked down the road.
Stuart Houston, director of finance at hotel firm RBH Hospitality Management, said “we would also have hoped for an announcement about the level of [value added taxes] in hospitality, which has been a focus for industry bodies to help drive demand to hospitality, stimulate … high streets and bring the U.K. taxation environment more in line with other countries for our industry.”
He added that freeze “presents yet another cliff edge in 12 months with uncertainty in costs and subsequent profitability offering no incentive for longer term investment. A fundamental review of the business rates charge that disproportionately impacts bricks and mortar businesses [versus] online businesses is long overdue.”
As of next April, Hunt said, the National Living Wage for those aged 23 and above will rise from 10.42 pounds sterling per hour ($13.04) to £11.44 per hour ($14.31), an increase of 9.8%. The rate will increase 12.38% from £10.18 to £11.44 for 21- and 22-year-olds.
While some staff might have received good news, wage increases place more pressure on hotels’ bottom lines.
Apprentices will see their hourly pay rise from £5.28 to £6.40, a rise of 21.21%. The hotel industry in the U.K. has been an enthusiastic supporter of recent changes and initiatives in regard to the apprenticeship scheme.
RBH’s Houston said these wage increases are “higher than previous expectations earlier in the year. Whilst great for employees, this will undoubtedly add additional pressure to hotels that have absorbed exceptionally high-cost inflation over the last year, depressing margins as well as increased financing costs on the back of interest rate rises."
Statistical Gymnastics
The main bonus from the Autumn Statement for hotel guests, Hunt added, is that National Insurance contributions will be cut from 12% to 10% on Jan. 6, 2024.
He said this initiative for those earning between £12,570 and £50,270 would save up to £450 a year.
Critics have suggested this is not such a boon, as personal allowance and higher-rate thresholds of income tax have been frozen since the lockdown. They are supposed to be brought back in April 2026, which will quickly counter any benefits stemming from the statement.
“We are backing small business by freezing their business rates, extending retail, hospitality and leisure relief. … Small businesses work so hard for us, so this government is working hard for them,” Hunt said.
Paul Johnson, director of the Institute for Fiscal Studies, said in a statement that this cut is the first time National Insurance contributions have been cut “in modern history. … Until now this was a tax that only seemed to go one way.”
He also said that “given the level of debt and debt interest, [the U.K.] will need to get used to running these surpluses. That means government taking more from us than it gives back on everything other than paying interest on its debt.”
In other words, discernible income will remain stretched, even if spend on hotels and travel seems to remain robust.
Duty on alcohol will not be increased until at least Aug. 1, 2024, Hunt said.
Steve Alton, CEO of the British Institute of Innkeeping, said he welcomed both the freezing of business rates and alcohol duty, for “not putting further pressure on top of embedded cost increases that our sector has been facing over the last few years.”
He added, though, that more help is needed.
“The rise in the National Living Wage … will hugely impact the profitability of [our members’] venues. Whilst we welcome measures that protect workers, there must be recognition of the impact this mandated increase will have,” he added.
UKHospitality’s CEO Kate Nicholls said increases in stipends for lower-paid staff are welcomed but will have the unwelcome consequence of putting additional wage pressure up through the rest of the food chain.
Speaking before Hunt’s speech had been given, Nicholls said “such a rise will have significant knock-on impacts on costs as businesses struggle to maintain appropriate wage differentials across all of their staff, including at more experienced levels."
“If businesses are expected to deliver these wage levels, there must be action to drive down costs in other areas. The first priority on that list needs to be extending business rates relief and freezing the multiplier [of business rates],” she added.
She worried that some hotel and hospitality sector businesses might not last until April to put these fiscal changes into place.