Harsh win­ter awaits for restau­rants with­out more help

The Daily Telegraph - Business - - Business Comment - marvin rust Marvin Rust is man­ag­ing di­rec­tor and head of tax at Al­varez & Marsal

If you took an evening stroll through a city cen­tre yes­ter­day, you would have seen groups of peo­ple din­ing al­fresco on packed ta­bles dom­i­nat­ing newly pedes­tri­anised streets: wel­come scenes af­ter the past few months.

The Chan­cel­lor’s Eat Out to Help Out scheme, ac­count­ing for around 35 mil­lion meals in its first two weeks, has been a much-needed shot in the arm for the hos­pi­tal­ity in­dus­try – un­doubt­edly one of the hard­est hit from the pan­demic. Not only has it brought cash through the door and en­abled more staff to re­turn to work, it has also helped set the econ­omy on course to some form of nor­mal­ity and en­cour­aged peo­ple out of their homes.

But what hap­pens now the scheme is com­ing to an end? The Chan­cel­lor may have fired the start­ing gun, but the in­dus­try and its cus­tomers have most cer­tainly not built enough mo­men­tum over these short weeks to con­tinue on their own, un­sup­ported.

As we ap­proach the au­tumn and win­ter months, these chal­lenges will only in­ten­sify, as the chang­ing sea­sons make out­door din­ing near-im­pos­si­ble and the UK sum­mer stay­ca­tion boom dries up. Con­sumers will now need to get com­fort­able eat­ing in­side, fur­ther lim­it­ing turnover, while cafes, restau­rants and ho­tels wres­tle with ex­pen­sive, but nec­es­sary, health and safety mea­sures and PPE. An in­creas­ing num­ber of an­nounce­ments from large firms about long-term plans to work from home also threaten restau­rants and ca­sual din­ing out­lets that de­pend on white col­lar foot­fall.

The Gov­ern­ment must con­tinue to pro­vide some form of tai­lored sup­port for this crit­i­cal in­dus­try – one that brings in £1.8bn to the econ­omy ev­ery year and em­ploys more than 3.2m peo­ple – as it faces this cliff edge, work­ing with rep­re­sen­ta­tives to mon­i­tor the sit­u­a­tion closely and be­ing pre­pared to act quickly. It should not rule out fu­ture in­no­va­tive schemes like Eat Out to Help Out, or ex­tend­ing fur­lough sup­port on a sec­tor-spe­cific ba­sis. Fur­ther cuts to VAT, a re­ver­sal of the de­ci­sion to re­sume busi­ness rates next year, or bring­ing about other forms of tar­geted re­lief would all be hugely wel­comed. Re­gard­less of the mea­sure, the in­dus­try is cry­ing out for some cer­tainty about its fu­ture.

While grow­ing, con­sumer con­fi­dence re­mains frag­ile, with the risks of a fu­ture sec­ond wave and re­gional lock­downs weigh­ing on public con­scious­ness. Lower prices over the month of Au­gust may have stim­u­lated some de­mand for eat­ing out, but this will not be enough to keep many hos­pi­tal­ity busi­nesses afloat with­out sig­nif­i­cant ef­forts to main­tain con­fi­dence, even if all busi­nesses were to pass on the ben­e­fits of the 5pc VAT rate to cus­tomers.

Mean­while, the end of the fur­lough scheme will un­doubt­edly have a neg­a­tive im­pact. Vis­it­ing restau­rants will be­come even more of a lux­ury for many peo­ple than it is now.

As at­ten­tion be­gins to turn to the forth­com­ing Bud­get, it is vi­tally im­por­tant that the Gov­ern­ment seeks to achieve two key objectives. First, con­sumer con­fi­dence needs to be built. Clar­ity that the tax bur­den will not be in­creased in the short term will en­cour­age con­sump­tion – vi­tal given about 70pc of our GDP is con­sump­tion-led. Sec­ond, many sec­tors, in­clud­ing hos­pi­tal­ity, need a clear frame­work within which to op­er­ate beyond the an­nounced mea­sures that largely end on March 31.

Much de­bate has al­ready been had around the best way to re­pay the un­prece­dented gov­ern­ment spend­ing since the pan­demic be­gan in March, with some ar­gu­ing that mea­sures like changes to cap­i­tal gains tax or pen­sion re­lief are the an­swer. The re­al­ity is, against the costs in­curred in deal­ing with the pan­demic, changes to these taxes have a mar­ginal im­pact. Tin­ker­ing around the edges will not be enough to make a dif­fer­ence – in­stead, the Gov­ern­ment must fo­cus on cre­at­ing a sus­tain­able, long-term path out of debt, fo­cus­ing on boost­ing con­sumer con­fi­dence and busi­ness per­for­mance in the im­me­di­ate term.

Specif­i­cally, the Gov­ern­ment should con­sider an em­ploy­ers’ na­tional in­sur­ance hol­i­day for the sec­tors that most need it, in­clud­ing hos­pi­tal­ity. This would have an im­me­di­ate cash im­pact as NI is paid monthly, re­duc­ing the di­rect cost of em­ploy­ment as the fur­lough scheme ends.

It is clear that de­mand for leisure and hos­pi­tal­ity is be­gin­ning to re­turn, par­tic­u­larly in ru­ral and coastal

‘The Chan­cel­lor has fired the start­ing gun, but the in­dus­try has not built enough mo­men­tum over these short weeks’

lo­ca­tions, but busi­ness de­mand is woe­ful. Con­fer­ences and meet­ings are key to many ho­tel busi­ness mod­els. An in­cen­tive as sim­ple as a tax credit to busi­nesses may help drive this ac­tiv­ity, while also hav­ing the ben­e­fit of im­prov­ing the men­tal health of work­ers who can meet each other again. Lift­ing or re­duc­ing quar­an­tine mea­sures as early as pos­si­ble and pro­vid­ing longer no­tice pe­ri­ods for travel restric­tions would also help sup­port rev­enue from in­ter­na­tional busi­ness trav­ellers. The pan­demic is likely to be a fea­ture of day-to-day liv­ing for some time yet, with the true long-term im­pact un­known.

Cre­at­ing an en­vi­ron­ment where busi­nesses can thrive, spend­ing is en­cour­aged and jobs are cre­ated will give us the best pos­si­ble chance of grow­ing the econ­omy and keep­ing tax rises to a min­i­mum while we nav­i­gate the chal­leng­ing times ahead.

As the fu­ture of the hos­pi­tal­ity in­dus­try and the wider econ­omy hangs in the bal­ance, the Chan­cel­lor must re­alise that the time to Help Out this sec­tor should not end on Aug 31.

The Eat Out To Help Out scheme, which of­fers 50pc dis­counts on meals, is due to close at the end of Au­gust

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