UK offers budget break for hotels

In order to break into the sharing economy, Marriott is entering into a six-month trial with Hostmaker, a London-based homestay property management company.
London. Photo credit: Getty/Stewart Marsden

This year’s Autumn Budget of the British Government, an annual budget set by HM Treasury for the following financial year, looked to lift some of the pressure on the nation’s hospitality sector by by cutting business rates.

Philip Hammond, chancellor of the exchequer, hailed an economy in recovery after years of belt-tightening austerity—yet despite the new budget, the sector continued to suffer under rising costs.  

The chancellor told the House of Commons the government would cut bills by one-third for retail properties with a ratable value below £51,000, benefiting up to 90 percent of retail properties for two years from April 2019. 

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“In the longer term, to support a sustainable transformation of High Streets, the plan includes a £675-million Future High Streets Fund, planning reform, a High Streets Task Force to support local leadership, and funding to strengthen community assets, including the restoration of historic buildings on High Streets,” he added. 

The Sector Responds 

“Hospitality businesses have been devastated by spiraling business-rates costs, so steps to address this are welcome,” said UKHospitality Chief Executive Kate Nicholls. “UKHospitality has exhaustively campaigned for support for the sector on business rates, so it [is] positive to see the government listening. 

“Cutting bills for smaller businesses by a third will provide some much-needed support and is a positive move by the government. This, along with the introduction of a new tax on digital businesses to ensure they pay their fair share, needs to be a springboard for further reform businesses-rates reform.” 

While the rate reform benefited small- and medium-size enterprises, it was less relevant for hotels, which were not included. The Billing Authority has some discretion to widen the list to hotels, and insiders are lobbying now to try and push that through.  

“The government has clarified that the changes in business rates it proposes are targeted at small- and medium-size retail businesses, particularly those with a rateable value of between £15,000 per annum and £51,000 per annum, who previously did not receive reliefs on their business rates,” said John Webber, head of business rates at Colliers International. “This is all very good, but this does nothing to help the big retailers who have been hammered by the 2017 Revaluation, both in terms of massive business-rates rises in some areas and the overpayment of rate bills in other areas where, due to downward phasing, many rate bills have been kept artificially high.  

“The chancellor has targeted help at the smaller- and medium-size businesses, but it is not just in one direction and is not as far reaching as has been implied. Most of the High Street is at the mercy of escalating business rates—the failure to address this issue will just mean the carnage on the High Street will continue.”  

The Cost Effect

The budget was released shortly before the 2018 UKHospitality Christie & Co. Benchmarking Report announced that controllable costs had risen to an average of 52.5 percent of turnover, the highest in the 12-year history of the report. 

Payroll costs, the single largest cost for dning out food-and-beverage businesses, stood at 29.4 percent of turnover, an increase of 1.5 percentage points in 12 months. 

“At a time of political and economic uncertainty, the government must provide support to help address spiraling costs that threaten the future of the hospitality industry in the UK,” said Nicholls. “Additionally, 40 percent cent of businesses surveyed reported a hike in their business rates and 20 percent have reported that they have had to cut staff numbers to address cost rises. The government must immediately commit to reform of a broken business-rates system.” 

The report also canvassed business confidence ahead of Brexit, with 40 percent of businesses believing Brexit would have a negative impact on business, with recruitment already more difficult and one in five employers reporting EU nationals already had left the businesses as a direct result of Brexit. 

“Brexit continues to cause concern for many businesses in the hospitality sector,” said Nicholls. “The effects of leaving the EU are already beginning to be felt by some employers. If the government wants to make a success of Brexit then action to reduce costs now, to mitigate the impacts of leaving, is absolutely necessary.” 

Chancellor Hammond sounded a note of caution to the accommodations sector:  “There is concern that some owners of properties that are not genuine businesses may seek to reduce their tax liability by falsely declaring that the property is available for let,” he told the House. “To ensure that second properties are subject to the appropriate tax, the government will consult on the criteria under which self-catering and holiday lets become chargeable to business rates rather than council tax.” 

With some councils in the UK looking to force those listing on sharing-economy platforms to pay business rates, a wholesale overhaul may mean more costs for many who would act as hosts.