Hospitality’s strong case for more help
IF one thing can be said with certainty about the tragedy of the coronavirus pandemic, it is that there is virtually no sphere of business which has been unaffected by its devastating impact.
For the broader hospitality sector, however, the effects look to be particularly acute.
While some outlets have been able to secure a modest stream of revenue through takeaway activity – though, it must be said, not nearly enough to maintain normal operations and staffing levels – cashflow at the overwhelming majority of bars, restaurants, hotels and tourist attractions came to a shuddering halt after having to close under social distancing measures imposed last month.
And the outlook, for the rest of this year at least, looks to be extremely bleak, after it was announced that major international events such as the Edinburgh Festival Fringe and the COP26 climate change conference in Glasgow will no longer taking place in 2020. Both events would have brought huge boosts to the sector.
In that context, the revelation last week that thousands of hospitality operators around Scotland are preparing fresh appeals over how much they pay in business rates could be crucial.
It should be acknowledged, of course, that the industry has received some interim respite from business rates, in essence a tax companies pay councils each month to fund local services.
In a move welcomed by many in the industry, the Scottish Government acted swiftly at the onset of the pandemic to grant a 100 per cent, one-year holiday from business rates for firms in the retail, hospitality sector.
At a stroke, this removed one of the biggest fixed outgoings for bars, cafes, shops and cinemas, at a time when no customers were coming in and no money was flowing through the tills.
Because of this measure, many businesses in Scotland do not have to worry about paying rates for a year. But what happens 12 months down the line? Can we realistically expect normal trading conditions to have returned by then?
It is a question testing the minds of economists as we speak, as fears grow that the interruption caused by the pandemic will not result in a V-shaped recession, in other words a sharp downturn followed by a quick revival, but a more protracted recovery, which may take years.
In terms of the hospitality industry, Gary Louttit, head of hospitality and leisure at Shepherd Chartered Surveyors, was not wrong last week when he said the impact of coronavirus had created a “material change of circumstances” in the short term.
What else can it be when you can no longer open your doors to trade, and indeed when people are rightly being instructed to stay at home to halt the spread of this devastating disease?
It is precisely because of this seismic change that Mr Louttit and his colleagues in the ratings department at Shepherd have been instructed to lodge so many appeals, with thousands more expected to be made by other agents.
Bills for business rates are calculated by multiplying the rateable value of a commercial property by a figure known as the poundage, which in Scotland has risen to 49.8p from 49p this month.
As a result of the virtual shut-down of the economy in recent weeks, there is a very good chance that property values will have radically altered. So why should businesses face bills which do not affect the economic reality?
Noting that the mothballing of the industry sparked by the coronavirus is “unheard of”, Mr Louttit insisted that ratings assessors must take the new circumstances into account when bills are being calculated.
“It is an appeal in extenuating circumstances,” he told The Herald. “This has never happened before, and is never likely to happen again.”
Mr Louttit also contends that appeals should be backdated to March 4, when the first guidance on social distancing was issued by government. “That was when people started to drift away from bars and restaurants,” he added.
Of course, the hospitality trade is not alone in being devasted by the coronavirus. The pain is being felt right across business, with thousands of jobs already lost and thousands of people swallowing pay cuts or being moved on to furlough to help companies survive this existential crisis.
Indeed, we continue to see a procession of listed companies informing the stock market of the drastic measures they are taking to preserve cash and protect their businesses.
Even the biggest UK companies, which until recent stock market falls had huge market valuations, are tapping into emergency government funding to pay wages and thus retain staff (though there remains much debate over whether the wealthiest should be entitled to such support).
On the specific matter of business rates, though, there is certainly an argument that the hospitality sector needs more help. Indeed, there are many who say the sector was already getting a rough deal from rates even before the current health crisis erupted.
The 2017 revaluation of non-domestic property in Scotland is still very fresh in the memory of many in the industry. That saw hundreds of businesses asked to pay thousands of pounds a year more in rates because the rateable value of their properties had massively increased.
Those increases were so contentious there were threats that some businesses would refuse to pay, echoing the reaction in Scotland to the much-derided poll tax many years before. In the end, the Scottish Government brought in emergency measures to cap the increases for the hospitality sector.
Mr Louttit referred to that controversy last week, when he said the appeals currently being prepared by Shepherd offer an opportunity for the industry to “hit back” after being “battered” by the previous revaluation.
As the battle against the deadly coronavirus becomes ever more challenging for frontline NHS workers, the priority of everyone in the country is rightly on minimising the pressure on the health service and ultimately saving as many lives as possible.
In that context, the amount pubs pay in business rates could hardly seem less important.
In terms of equipping businesses with a fighting chance when we finally emerge from this nightmare, though, a little help will go a long way.
And that is not just because many of us will be desperate to return to our favourite pub or restaurant after social distancing measures are finally relaxed.