2022 Budget Recap: Hospitality Highlights

Simon Binder, Executive Chairman of Paperchase, reviews the Spring Statement 2022

For the hospitality sector, 2022 was to be a year of hope and optimism, with the industry recovering and getting back to normal as quickly as possible. That said, whilst the Chancellor has made his budget as fair as possible across all sectors, how does it affect hospitality and what other pressures will come to bear in the coming months?

On greater inspection did the Spring Statement offer a positive lifeline to hospitality? A few bones were thrown in its direction, but very few had any meat on them! Outside of the framework of the Spring Statement, the industry is bracing itself for predicted and long expected increases in certain statutory operating costs, in addition to increasing utility, fuel, and increasing costs of raw materials.

So, whilst government recognises that small and medium-sized enterprises are struggling with rising energy costs, recruiting staff, and navigating turbulent supply chains as the world economy recovers from the pandemic, Paperchase, the UK’s foremost hospitality accountants, presents a snapshot of what this mini budget will mean to hospitality in 2022.

Business Rates

From the 1st April, hospitality operators will benefit from a 50% cut in Business Rates, up to a threshold of £110,000 offering some relief from fixed operating costs. The business rates multiplier will be frozen in 2022-23, which is a tax cut for all ratepayers worth £4.6 billion over the next five years. Eligible retail, hospitality, and leisure businesses will benefit from Business Rates Relief worth £1.7 billion, which to an average pub, with a rateable value of £21,000, will save £5,200 per annum.

Employers and Employees NI & Tax

Sunak confirmed that the planned 1.25% increase in national insurance will go ahead in April to raise cash for health and social care. However, the Chancellor tried taking the sting out of this new levy by increasing the NIC threshold by £3,000 instead of the planned £300. He said this would equalise the NIC and income tax thresholds in one go, taking the limit to £12,570 from 6th July 2022, providing more benefits to the individual. This in conjunction with an increase in the employer’s allowance which rises to £5,000 offers additional benefits when employing staff.

VAT 5% rate on energy saving materials cut to zero

Being “no longer constrained by EU law” allowed Sunak to scrap the 5% VAT rate on energy saving insulation and solar panels. For businesses in hospitality who are registered for VAT this is a hollow benefit, as that tax would have been refundable at 5% anyhow.

Business Innovations

Innovation in business will be rewarded with tax credits in the Autumn budget, in addition to current discounts of up to £5,000 on software and applications to encourage business to go-digital.

Subsidised Skill Training

To help SMEs gain the skills they need to succeed, the government is subsidising the cost of high-quality training. Help to Grow: offers businesses 12 weeks of world class leadership training through the UK’s top business schools, with government covering 90% of the cost. The cost of apprenticeship training is 95% subsidised for SMEs that do not pay the Apprenticeship Levy.

Income tax

In the shock rabbit-out-of-the hat announcement at the end of his speech, Sunak announced “for the first time in 16 years” a 1% cut in income tax before the end of the Parliament in 2024.

Pre-Budget Increases

So, those were the plusses in the Sunak Spring Statement, so what is coming down the line that the industry still has to deal with? What increases in operating costs are destined to increase from the 1st April, which the hospitality industry knew of and were bracing themselves for? Here are the main points.

VAT

Before the Spring Statement VAT was destined to revert back to 20% from the 1st of April. With increases to the cost of living, will this additional 7.5% make it difficult for some consumers to continue to spend in bars, and restaurants? How will this affect trade?

Staff Costs Increase

Staff costs will increase as the ‘National Minimum Wage’ increases to £9.50 from £8.91 from 1st April. That may be only 59p per hour, but a restaurant with 10 staff on minimum wage could be facing an increase in wage costs of over £20,000.

Energy Prices

Whilst energy prices continue to increase due to the unrest in the Ukraine and Russia, a planned energy hike will be introduced across the UK in April 2022.

Market Forces & Trends

With unrest in the Ukraine and the actions of Putin, prices are rising in the UK which are already affecting hospitality. Russia supplies 40% of Europe’s natural gas and 25% of Europe’s oil and in 2019 the UK imported 13% of its oil/gas/LNG/Elec from Russia, hence the increase in fuel costs will hit UK hospitality hard. Russia & Ukraine are the world’s leading producers of wheat, producing 80% of the world’s total, and since the crisis, the prices of wheat have gone up by 30%. Lastly, Russia and Ukraine produce 80% of the world’s sunflower oil, which finds it way into a plethora of products for the catering industry.

The underlying message from yesterday’s statement from Sunak is that hospitality will benefit from a few measures, but not enough to counter increases in fuel, wage costs, VAT, and raw materials. Now more than ever before hospitality businesses need to be more conscious of controlling running costs and overheads by having good, regular, financial reporting as well as understanding margins right across the menu.

About the author:

Simon Binder has spent his entire working life in the hospitality sector as a restaurateur, a strategic consultant to the industry, as well as building some of the most iconic restaurant brands in the UK. Simon Binder is now Executive Chairman of Paperchase.