Operators give cautious welcome to ‘pragmatic’ Budget

Leading operators have expressed satisfaction with yesterday’s Budget announcements but stressed that more needs to be done to support the sector.

In his second Budget of the year, chancellor Philip Hammond made a number of positive announcements for the sector.

The measures

The ALMR has issued a briefing on the main points (attached), which included a pledge that business rates would increase in line with CPI rather than RPI – an increase of 3% rather than 3.9%, which the ALMR said would save the eating and drinking out sector £75m a year. Business rates revaluations will now take place every three years rather than five, with a consultation due in the Spring on the process. The £1,000 relief for pubs with a rateable value under £100,000 will continue for another year. The Government also published a position paper on the challenge of taxation of digital business – with a consultation ending at the end of January.

There will be a freeze on duty for beer, cider, wine and spirits – which the ALMR said would represent an effective saving of around £115m to hospitality businesses. On white cider, Hammond said the Government would legislate to create a new tax band from 6.9% to 7.5% from April 2019

The VAT threshold will be maintained at £85,000 for the next two years and the Government will consult on how it could be amended to promote growth.

National Living Wage will increase to £7.83 (from £7.50) from April 2018. The Government accepted the Low Pay Commission’s recommendations on the minimum wage, raising it from £7.05 to £7.38 for 21-24 year olds and from £5.60 to £5.90 for 18-20 year olds.

As expected, the Government will investigate how the tax system could be used to reduce plastics by adding extra charges for single-use packaging. It is thought that bottles and coffee cups will not be included in any levy.

Operator views

Jeremy Roberts, chief executive of Living Ventures, told MCA: “The duty freeze is great simply because it’s not an increase. If mortgages are going to start going up we don’t want consumers seeing price rises that we cannot control. With duty increases we can only effectively reduce our profit or pass it on and its good to be avoiding that decision right now.”

Roberts described the rates move as “tinkering” and said the system remained antiquated and in need of change.

Jonathan Neame, chief executive of Shepherd Neame welcomed the duty freeze and told MCA that it was important to look at the cumulative impact of the changes.

He said: “Pubs have faced a fairly toxic mix of cost pressures and any alleviation of that has to be welcomed. Anything that allows pubs to remain competitive and not have to pass on extra costs to customers can only be beneficial.

“The announcements about business rates are certainly to be welcomed but that is welcome with a small ‘w’.

“The message from the pub and brewing sector for a long time now has been that a root and branch review of the system is needed. These measures don’t change that.

“What is needed on a broader scale is a set of policies that our going to inspire businesses and excite investors that the UK is a forward looking country that wants to support growth. This was a pragmatic and business-like Budget which has done something to restore the Chancellor’s reputation after his first Budget of the year, but hasn’t done much to excite anyone.”

Patrick Dardis, chief executive of Young’s told MCA: “All in all it was as good as we could expect. The general industry chat suggested a duty increase. So, a freeze is not a bad result. Of course, a reversal would have been the right thing to do, but Philip Hammond had little room to manoeuvre.

“The announcements on business rates are a step in the right direction. However, it does not help ease the huge burden of last April’s increase or does it correct the imbalance between on-line retailers and high street traders.

“As for the NLW – the measures announced seem very fair - an over 4% increase, above inflation is positive.

“As for all of the above, it certainly could and should have been better, but credit where credit is due, as it could have been a hell of a lot worse.”

James Baer, managing director of Amber Taverns, told MCA: “In the context of where the Government are, this is not a bad result.

“I know some of my colleagues, who operate in more glamorous parts of the country and sectors of our industry, aren’t too fussed about beer duty but it is good news for us Northern oiks, so well done to the trade bodies who lobbied on this and thanks to the MPs who supported us .

“Rates needs a fundamental reform but again, given the bigger picture, this was better than nothing. The big issue with rates is that you get penalised for investing in a closed or failing property - this is the sort of thinking you would expect of Corbyn and his crew, not mainstream politicians. So, maybe for properties in the regions there could be a moratorium on RV increases post investment or alternatively increased capital allowances.”

Red Mist Leisure managing director, Mark Robson, said: “I’m pleased with the duty freeze but of course I would have preferred that he followed the lead of his predecessor and reduced duty, we all know how burdened pubs are already with the various taxes we have to pay.

“The business rates relief for another year is welcome as are some of the reforms he proposed, especially moving from RPI to CPI for the multiplier increase. However, my biggest gripe with business rates has always been the way they are calculated. It lacks common sense and does not take many relevant factors in to account which often means pubs are proportionately paying much higher rates than other comparable businesses in a different sector. I am disappointed this was not addressed and is not the ‘root and branch’ reform that he referred to in the Spring.

“Increases in NLW and NMW are moderate and it is good to see the chancellor accepting the recommendations of the Low Pay Commission rather than pulling the increases out of a hat as has been done previously.

“All in all, I give it a 7/10.”

Street food

Simon Mitchell, managing director of street food markets operator, Kerb London, gave MCA the view of fledgling operators.

He said: “We’re glad that the Chancellor didn’t reduce the threshold of VAT from £85,000 to £20,000. VAT is a massive issue for our industry and the proposed change would have been damaging to street food.

“When your annual turnover reaches £85,000 you’re obliged to register for VAT, which means that 20% of all your sales go to HMRC. VAT is levied on lots of different industries but it affects the food industry more than others because the two principal costs aren’t subject to VAT. Raw ingredients and staff are zero-rated, but the product is rated at 20%. A lot of businesses have to pay VAT but can also negate the effects of the tax by reclaiming it off their purchases.

“The current threshold is already a major barrier to growth for street food traders. A turnover of £85,000 can be reached very quickly over a year, and we’ve had a trader recently have to leave the industry because they were about to hit the VAT threshold and it would have become unviable.

“Reducing the threshold down to £20,000 won’t affect those who are already paying VAT, but it’ll affect the traders who are getting into street food because of its low barriers to entry (you can start a business on less than £5,000 and invest any income straight back into it). That’s how traders like Bill or Beak and Kimchinary were able to become successful. Over a year, the lowering of the threshold is effectively asking a new business to pay roughly an extra £13,000 in tax for a business that is unlikely to make a profit in their first year anyway.

“That £13,000 would have been invested straight back into the business, on new equipment, better signage, a website etc, basically growth at its most vulnerable time.

“So what happens? It either means that the trader swallows the cost and works to a lower profit margin, making less money and employing fewer people. Or the alternative is passing that cost onto the customer so that £7 burger now costs £8.40.

“Street food is a huge growth industry for the country, all against the backdrop of growing headwinds in the hospitality industry. Our traders pay a premium on the ingredients they source, they pay their staff above average and ask them to work fair hours. This is partly because they were able to grow their business to a level of sustainability before having to pay VAT. As we said before, our established traders will be ok but it will kill off the next generation of BAO’s, Bleeckers, and Pizza Pilgrims.”

Suppliers

David Forde, UK managing director of Heineken, said: “Having already hiked beer duty this year, it is good to see the Chancellor recognise the importance of the Great British Pub. Together with some good news on business rates, it’s a welcome package for pubs and hard-pressed beer drinkers.”

Bruce Ray, vice president corporate affairs, for Carlsberg UK, said: “Today’s announcement today about a freeze in beer duty will be welcomed by brewers, publicans and everyone who enjoys a glass of beer in the pub. This year’s cut will support continued innovation and investment, create new jobs, attract tourists and ultimately benefit our beer-loving nation. This is a wonderful achievement secured through cross-industry work, and we are pleased that government has recognised that a thriving and prosperous beer and pub industry is what our nation needs.”

Trade bodies

BBPA chief executive Brigid Simmonds said: “The Chancellor’s decision to freeze beer duty and cancel his planned rise is an early Christmas present for beer drinkers and pubgoers worth £117 million this year and in subsequent years. It will secure over 3,000 jobs in pubs and the wider beer supply chain that would otherwise have been lost. This real-terms duty cut shows he has listened to our campaign and the concerns of pubs and pubgoers, and acknowledged the special role that beer and pubs play in the nation’s social life.

“With over 80 per cent of the beer drunk in the UK brewed in the UK, he has understood the important capital investment made in the UK by our members. This is absolutely the right step towards a fairer deal for Britain’s beer drinkers and pubgoers and a vote of confidence in a very British manufacturing industry worth £23 billion to the UK economy. Beer drinkers will raise a glass to the Chancellor tonight!

“This extension of the pub-specific rate relief is also very welcome and continues to recognise the disproportionate rates burden faced by pubs. Moving from RPI increases to CPI two years earlier than planned from April 2018 is really welcome as is in the announcement on three yearly revaluations. It shows the Government is listening to our concerns and this will save pubs £37 million this year alone.

“The announcement that revaluations will happen more frequently is good news too, as high rates bills for pubs often lag behind the trading realities.”

ALMR chief executive Kate Nicholls said: “At a time of rising costs, a freeze in the beer duty and a continuation of support for pubs on business rates is very welcome.

“The ALMR has been pushing for a duty freeze across all alcohol types, and this positive action will help tackle rising costs, saving the sector around £116 million, as well as underpinning consumer confidence.

“An extension of the pub-specific rates relief will save the sector almost £20 million, and bringing forward the move from RPI to CPI to calculate bills, something the ALMR has pushed for, will save close to £100 million over four years.

“The promise of more frequent revaluations is also welcome and something the ALMR has lobbied for, although we are concerned that, in practice, there may be some administrative burdens which will need to be addressed.

“It is also good to see the Government accepting the recommendations of the Low Pay Commission on the rate of the National Living Wage, de-politicising the decision. Although this may present a modest financial burden for employers it will also put money in the pockets of our customers.

“This shows that the Government has listened to the concerns of the sector, the concerns of ALMR members, and acted to support vital hospitality businesses at a time of economic and political instability. The ALMR has worked hard to communicate the pressures being faced by eating and drinking out businesses and it is good to see the Chancellor acknowledging these challenges and listening to what businesses have to say.

“The next step is for the Government to push ahead with its promised package of root and branch reform for business rates, and the ALMR is looking forward to working closely with the Government to deliver change.

BII chief executive Mike Clist said: “We welcome the fact that Government has listened to the call to help pubs in what is a very competitive marketplace.

“Moving the annual inflation of rateable values from RPI to CPI, continuing the £1,000 rate relief policy for a further year and moving the revaluation of properties to 3 yearly will all help. We do however still believe the rating system needs a complete overhaul and we will continue to lobby for this.

“No increases in drinks duty will hopefully encourage customers to continue to use our great British pubs.”

Miles Beale chief executive of the Wine & Spirit Trade Association said: “We are pleased that the Chancellor has found his festive spirit and listened to the call from the WSTA and its members and has frozen wine and spirit duty. He has shown the Government is in touch with what consumers want and is supporting an industry which is proving to be a real asset to British business. He has recognised that rebalancing the UK’s excessive duty rates is a win/win for both the Treasury, the wine and spirit trade – not to mention consumers. This decision will be celebrated by millions who will raise a glass this festive season!”