What did the hospitality trade get from the Emergency Budget?

Matthew Wyatt FCA examines what the hospitality trade needed from the Emergency Budget and what it received.

On 8 July, Chancellor, George Osborne, revealed the fiscal path the country will pursue for the next five years of the Conservative government. Unconstrained by the compromising nature of a coalition, Osborne was able to design and implement his party’s agenda in full for the Emergency Budget

As far as the hospitality industry was concerned, his measures needed to be clearly pro-business, pro-wealth creation and pro-improved productivity.  That meant encouraging business creation, stimulating private sector growth and, just as important, helping businesses to upskill their employees. 

With that in mind, prior to Osborne’s speech we constructed a list of the 4 key items the sector needed addressing and then compared them with the announcements in the Emergency Budget. This should then give you an idea of what the Budget really meant for your hospitality business.

1. Maintain the increase in the Annual Investment Allowance for a full five year term   

What we wanted

The Annual Investment Allowance (AIA) is a tax allowance for capital expenditure. It reduces your taxable profits by the total cost of the qualifying investment(s) up to £500k per annum. For more information on the investments that qualify read carefully, the Annual Investment Allowance increase means it’s time to invest in your business!

The problem is whilst the Chancellor doubled the AIA limit in 2014, the time limit set on this meant it was only going to last till 31 December 2015. After that date the amount was set to revert to £25,000. We felt Osborne needed to maintain the increase for the length of this Parliament because small businesses are the lifeblood of the industry and need fiscal incentives to grow. Encouraging growth leads to stronger enterprises and greater economic growth.

What we got

The AIA will reduce to £200,000 from 1 January 2016. Whilst considerably better than the original reversion total this is still a reduction and disappointing for the reasons stated above. It leaves businesses with little time to plan their investment decisions and submit their applications before the reduction kicks in.

2. A review of business rates which has been grossly unfair for hotels and restaurants 

What we wanted

The hospitality industry has, in effect, been penalised by the rating system. Whilst it was recognised by many that a VAT cut was highly unlikely to happen, that didn’t mean something shouldn’t have been done to ensure a level playing field with the supermarkets. Why should these large retailers have a VAT rate of 0% applied to the food and drink they sell whilst restaurants and hotels are stuck with the standard 20%? 

What we got

No change from the Chancellor in the Emergency Budget. The industry needs fairness and equality to compete.

3. A reduction in National Insurance for small businesses

What we wanted

Small businesses make up the bulk of the hospitality industry and they find National Insurance (NI) a huge burden. A more flexible system of NI is needed whereby smaller employers taking on young people or training young people in recognised programmes, or who are in approved apprenticeship, pay a reduced rate.   

What we got

The NI system hasn’t been made more flexible and it doesn’t reward employers training young people. That said the chancellor increased the employment allowance from £2,000 to £3,000 from April 2016. That’s a good thing because it’s designed to encourage small businesses to take on their first employee or recruit more staff.

4. Improved funding for FE college courses, so important for the hospitality industry

What we wanted

A reversal to the reduction in spending on the practical element of catering qualifications. This has already had a negative impact on skills – it will be disastrous moving forward and will make any hope of improving productivity in the industry an even more distant prospect.

What we got

Two days after the Emergency Budget the Chancellor launched his “Fixing the foundations: Creating a more prosperous nation” paper. This contains some welcome aims including increasing the number of apprenticeship starts to 3 million in this Parliament and reforming the funding around apprenticeships.

There are also initiatives for improving professional and technical education including streamlining the number of qualifications, and expanding on the National Colleges initiatives by creating Institutes of Technology to be sponsored by employers, registered with professional bodies and aligned to apprenticeship standards. The jury’s out however, as we await further details of these reforms which are due in the Autumn.

In many ways this was a mixed bag of a budget for the hospitality trade.  A decent AIA limit will be in place next year but it is reduced from the current level. VAT rates remain unfair. National Insurance is inflexible but there was progress in terms of the employment allowance. There are some good sound bites in terms of adult education and training but we won’t know the full picture until later in the year. It therefore continues to be a challenging environment for hospitality businesses to operate within.

The content of this post is up to date and relevant as at 17/07/2015.

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