Profit hit: A signage of a Premier Inn Hotel in County Durham, Britain. An analyst says the 67 Premier Inn hotels in England he sampled, all above the £500,000 relief cap, will see their rateable values soar by an average 1,700%.— Reuters
LONDON: When Rachel Reeves told Parliament her budget would help struggling hospitality businesses with “the lowest tax rates since 1991,” UK pub owners and hoteliers breathed a sigh of relief.
Now that the fine print of changes to business rates – a property tax – has emerged, they’re crying foul.
“Despite her calling out hospitality in the speech, the actual reality is that rates have gone up,” said Phil Urban, chief executive officer of Mitchells & Butlers Plc, the pub operator behind the Nicholson’s and All Bar One chains.
Hotels and pubs were already grappling with soaring costs that have hurt margins as the hospitality industry tried to recover from Covid lockdowns.
Higher minimum wages and payroll taxes this year made running a profitable business even more challenging.
After last Wednesday’s budget, which also included a rise in alcohol duty, the government is set to make £37bil (US$49bil) from business rates next financial year – squeezing companies of all sizes.
“The commercials of running a hospitality business over recent years have become tougher and tougher,” Urban said.
In her budget, the chancellor of the exchequer said her plan was to hit large retailers with big warehouses and stores with higher business rates, to help fund a lower levy for businesses with smaller properties.
But the picture for hospitality altered dramatically when a business rate revaluation by the independent Valuation Office Agency was published.
Hotels were hit hardest, with their rateable value jumping 78% on average, according to the agency. Pubs face a 30% increase from April.
To calculate how much an individual site pays in business rates, that rateable value is multiplied by a level set by the government.
It means that over three years, the average hotel will pay £205,200 more than now, UK Hospitality estimated. The average pub will pay an extra £12,900.
Businesses are “getting absolutely hammered,” the trade body’s chief executive officer Allen Simpson said.
The government is supporting pubs, restaurants and cafes with several measures, according to a Treasury spokesperson.
These include cutting licensing costs, making it easier for them to offer outdoor drinks and dining, capping the corporation tax and maintaining a previous reduction in the alcohol duty on draught pints.
But the hit to pubs and hotels has been compounded by the end of discounts and other relief aimed at helping them recover from the pandemic.
“I’ve been on the phone with relatively big pub chains who are beyond furious and very small cafes, bars and independent hotels who are heartbroken because this will push them out of business,” Simpson said.
A minor discount for smaller properties won’t be enough to offset these costs, UK Hospitality said.
The impact on hotels was spelled out last Friday by Premier Inn owner Whitbread Plc, which warned the changes would deliver a profit hit of as much as £50mil in the financial year ending February 2027. Its stock slumped 11%.
Bernstein analyst Richard Clarke estimated a sample of 67 Premier Inn hotels in England, most of which exceed the £500,000 level below which properties receive relief, will see their rateable value rocket by an average 1,700%.
In Manchester city centre, for example, the rateable value on one Premier Inn will jump 385% to more than £1.2mil in April, from under £250,000.
“We are extremely disappointed with the outcome of UK budget, which will have a significant impact on our business and the wider hospitality industry,” CEO Dominic Paul said in a statement.
Smaller, independent operators are also under pressure.
Brian Keeley-Whiting, managing director of WH Pubs Ltd, said the rateable value will soar for his five pubs in Kent.
The 59-year-old was already reeling from the last budget – which included a higher minimum wage and rise in national insurance contributions – and said the government keeps “banging more nails into the coffin.” — Bloomberg
