Hospitality Sector: Fiscal Support

Anthony Mangnall Excerpts

Wednesday 31st January 2024 Westminster Hall

[Anthony Mangnall (Totnes) (Con)]

It is a pleasure to serve under your chairmanship, Ms Bardell.

UK hospitality is an integral part of our national economy and this debate would be incomplete if we did not consider the impact of tourism. It is worth £127 billion to our economy—9% of GDP—and hospitality alone is worth £56 billion, with 2.5 million people working in it and 233,000 businesses directly related to it. I started my career waitering in Royal Hospital and in the Queen’s Gallery. I also served in a cocktail bar in rural Dorset—one can imagine how successful that was. It is a perfect way of entering the working environment, placing service at the centre of its values and making sure that people across this country can enjoy the fine local produce that we produce in this country.

However, hospitality has been deeply impacted by the pandemic, lockdowns, the tightening of belts, and of course the strikes. Those attending the UKHospitality event yesterday will have heard time and again how many such businesses throughout the country have been impacted by rail strikes, costing them hundreds of millions of pounds each year. There needs to be an answer to that; perhaps the Minister will remark on it.

In the course of the past four years, an industry, a sector, that has been routinely hit by lockdowns, pandemics and strikes has had a great deal of help from the Government, whether it was the eat out to help out scheme or the campaign that I led by getting Conservative colleagues from across Parliament to support a reduction in VAT—temporary though it may have been—to 5%, in parity with what our European friends and neighbours had done. The results of that cut to 5% were enormously successful. Businesses across the country are still calling out for the reinstatement of that reduction, which is why I think that the hon. Member for Stirling (Alyn Smith), who has done so well to call this debate, will find that there is very little opposition when it comes to reducing VAT. That 5% rate proved that it was possible to create a sustainable business model for the tourism and hospitality sector to thrive, to give it the resilience to weather certain shocks and to maintain confidence in the sector overall. We also looked at how we could change licensing rules. We have taken a far more European approach in allowing businesses to operate outside, on pavements, which has been enormously successful in places like mine and across south Devon.

However, the challenges remain. The challenges for the whole sector are that there are labour shortages, VAT is still high, energy costs are still hitting those operating in the sector and business rates need to be reviewed; I have already mentioned strikes. I would like to make one point about labour. Each of our constituencies will have hotels, pubs, bars and restaurants that are absolutely suffering over the idea of labour shortages, so I would like to make this point to any colleague here and anyone watching this debate at home. Within the terms of the UK-Australia free trade agreement there is something called the working holiday visa, for anyone between the ages of 18 and 35. People will be able to come over here for three years without any visa requirement, starting in July. No businesses seem to be talking about that, and it is our job as Members of Parliament to go back to our local businesses and tell them about it, because it will make a real and significant difference to their labour shortages, if they are able to prepare for it and capitalise on it when it comes in, this July.

In that difficult moment during the pandemic, it worked to reduce VAT to 5%, to give businesses that headroom—to continue not to have high tax bills, and to be able to supply their customers and pass on some of those savings. Where we are different from Europe is that although Europe has lower VAT rates it also has quite high tourism taxes. We must have a discrepancy for that, and my proposal to the Government is, I hope, a little simpler. It is that we reduce VAT by 10%. I know it is easy for Back Benchers to say, “We need a 10% reduction in VAT—you figure out the cost,” but let us do it on a sliding scale over the next five years, during which we reduce VAT by two percentage points each year, so that we get down to a level that is fair and acceptable to a sector that has gone through so much.

As has been said about business rates, we do need to ensure that things are passed on. It is disappointing, when we have been generous in government, that we have not seen the devolved Administrations passing that generosity on. The hon. Member for Stirling said that he was disappointed by his own Government’s actions in this area.

We must also end the train strikes. They are having an impact, whether people are in London or any other city, or even in rural areas such as south Devon. We must get to a point at which we are looking to deal with the strikes and stop that unbelievably catastrophic stranglehold on our tourism and hospitality sectors.

Finally, Ms Bardell, whether you are staying at the Berry Head Hotel and drinking Salcombe beer or Hunts cider, or still on dry January and enjoying Luscombe’s drinks at the Pigs Nose, the Barrel House, the Durant Arms, the George, the Queens Arms, the Kings Arms or the New Inn Morleigh, or just visiting Gara Rock and eating at the Crab Shell, the Seahorse or Rockfish, it is important to remember that they are all a great deal closer than any of those fine establishments in Cornwall and you can reach them far more easily.

--- Later in debate ---

[Nigel Huddleston]

I will make sure I leave a minute or two at the end for the hon. Member for Stirling to conclude—I may have shot myself in the foot there by giving everybody the opportunity to ask all the awkward questions they now have.

Like many hon. Members, my first job was in the hospitality and leisure sector, with a travel agent. I then had the very difficult choice at the age of 22 between taking a job for Arthur Andersen and becoming a Club 18-30 rep. I wonder if my life might have been considerably different if I had taken that slightly different path. My right hon. Friend the Member for Witham is right: jobs in the hospitality and leisure sector help people with numeracy skills, self-confidence and interpersonal skills, which can stay with them for life.

We need to recognise that this sector is not just about part-time jobs for students or young people; we should not forget that there are also valuable, often very high-paying, long-term careers in the sector. The sector has evolved and changed, and is now a major contributor to the UK economy, with £140 billion of economic activity. There are masses of opportunities there, but the reputation and image of the sector is sometimes one of its inhibitors. I am therefore a huge champion of the sector for all the reasons we have outlined.

We have had quite a lot of debate today about the various support measures, including business rate relief. It is worth remembering that the Government provided £16 billion of business rate relief in England through the pandemic. In addition, we launched the temporary 50% retail, hospitality and leisure relief scheme at the 2021 Budget. That was built on in the 2022 autumn statement, and the Government announced further tax cuts to the sector in last year’s autumn statement—about £4.3 billion over the next five years—and extended the retail, hospitality and leisure relief scheme at 75% up to a cash cap of £110,000 per business for 2024-25.

As has been recognised, the Labour Government in Wales and the SNP Government in Scotland were not able to extend those reliefs. I recognise that everybody realises there are considerable financial pressures, but with the greatest respect to my opposite numbers, who have been somewhat critical, I do think this is important and it is something I will play up very heavily: we have done things in England, where we have controlled the levers, that have not been done in Wales and Scotland.

Overall, this tax cut is worth about £2.4 billion for around 230,000 retail, hospitality and leisure properties to continue support for our vital high streets and protect so many small shops and businesses. The Government have also decided to freeze the small business multiplier for the fourth consecutive year. That will protect over a million rate payers and 90% of all properties from a multiplier increase.

For example, as a result of the changes, the average independent pub will receive about £11,800 of relief off their final business rates bill in 2024-25. Combined with the small business multiplier being frozen, they will benefit to the tune of about £12,800 of support. I repeat: that is not the level of support that they would get in Scotland or Wales.

A few points were raised about other areas, and I remind hon. Members that reliefs are also available for improvements in property. If there is an incremental rateable value because of improvements, that will not be included for the first year where eligible. I also remind hon. Members about the changes in alcohol duty and the Brexit pubs guarantee, which are designed to support the pubs sector and to help it operate on a level playing field with supermarkets.

My right hon. Friend the Member for Witham (Priti Patel) made many points about skills and jobs. I will not repeat what I said, because I think I have made the point that we are very aware of the importance of that sector and the role we have in developing skills and opportunities.

Cutting VAT was mentioned by nearly everybody, and I want to be clear on this point. As we all know, VAT is a major contributor to the nation’s finances, which we then spend on our vital public services. It is forecast to raise about £173 billion in 2023-24. Since we left the EU, we have been taking advantage of multiple reliefs. I believe that if we were to rank ourselves against all other EU countries for the total number of reliefs we are able to exercise through VAT, we would be about second or third. We have been taking advantage of leaving by reducing reliefs and making real differences where and when we can.

The VAT cut for tourism and hospitality that we made during the pandemic came at a significant cost of more than £8 billion. Reintroducing it would come at a considerable cost. That was just one element of the support for the retail, hospitality and leisure sector during the pandemic, but it was a really important part of it.

[Anthony Mangnall]

I thank the Minister for that response; it is very helpful to get an understanding of what the costs would be around VAT. Was any modelling done of what would have happened if we had not made that cut and what the impact would have been in terms of lost businesses and rising unemployment numbers? Could those models be produced or published, so that we can make that comparison in Parliament?

[Nigel Huddleston]

Various pieces of internal and external analysis have been released. We all know anecdotally from experiences in our constituencies that it literally did save businesses around the country. As I said, the Treasury keep tax policy under review all the time—that is a mantra, but it is true. The message I want to get across to colleagues today is that this will not be an easy choice. I understand the asks and we understand the impact, and there are various points of modelling, but it would not be an easy option. I repeat the caution that pass-through is vital when it comes to VAT relief. That did not happen wholly last time, but I understand why, as some of it was cash flow.

[Nigel Huddleston]

My right hon. Friend makes a logical point. I assure him that I am listening, but I am not making any promises.

I will refer to a couple of other areas that hon. Members mentioned. I appreciate the tone adopted by the hon. Member for Stirling. He recognised that there are things that the sector is requesting and looking for that Scotland, Wales and other countries are not able to deliver. That does not mean that any of us are not sympathetic; it is about the balance of the support package that we need to deliver. Like many today, he commented on both business rates and VAT.

My hon. Friend the Member for St Austell and Newquay has one of the most beautiful constituencies in the country, but also, as he said, one of those that is most reliant on this sector. He raised a variety of points, and he and I have had ongoing conversations about this subject, because he is such a champion of it. His point about the ongoing efforts to make sure that we get more inbound tourists outside London is pivotal. There are various opportunities and measures: VisitEngland, VisitBritain, VisitScotland, VisitWales, Discover Ireland and Discover Northern Ireland all do a fantastic job of helping to support and enable that tourism, plus there is a key role for our transport system.

My hon. Friend is right, however, that about 50% of all inbound tourism spend is within the M25. That is great, and we are not saying that that should be less; we are saying that we want it to be “London plus”. That is a key part of the tourism strategy, and I assure my hon. Friend that we are talking about this on an ongoing basis with DCMS and the Tourism Minister.

The hon. Member for York Central (Rachael Maskell) highlighted issues in her fantastic constituency, which I have had the pleasure of visiting on multiple occasions. She highlighted the importance of heritage in the tourism and hospitality ecosystem, and also mentioned flooding. She may or may not be aware that there are opportunities for businesses that are severely impacted by flooding under what is called a “material change in circumstances”. Working with the valuation office, there are opportunities to see, on a case-by-case basis, whether some relief is available. She might want to see whether some of the businesses impacted could consider that, as well as other support measures that we have provided for those impacted by flooding.

My hon. Friend the Member for Totnes (Anthony Mangnall) raised multiple points. He highlighted the upside of some of the trade deals that we are doing, so his constituency is now probably going to be flooded by Australian barmen and barwomen over the next few years. That is not necessarily a bad thing; I wonder whether they are better cocktail waiters and waitresses than he was.

My hon. Friend also raised the important point that, although the headline rates of VAT in some of our European friends’ countries may be lower, there is often a sting in the tail of quite considerable—startlingly high, in some cases—tourism tax, sometimes at a very local level. There is not a huge amount of evidence to suggest that that works either. There is always a balance, and although something may look like a beneficial tax rate system, one only has to scratch beneath the surface to find that there is something a bit more to it.

[Anthony Mangnall]

The Minister is giving a comprehensive answer to all the points raised in the debate. I re-emphasise the point that, if he is worried about the £8 billion figure that was quoted as a cost for when we reduce VAT by 15%, he could get around that not only by using UKHospitality’s data, but by tiering it and doing a 2% reduction over a five-year period. I hope that would at least comfort the bean counters in the Treasury and reassure UKHospitality that we are going in the right direction.

[Nigel Huddleston]

I am yet to see the beans being counted, although I am sure that it happens somewhere. My hon. Friend is building on a very clear message that I have received from right hon. and hon. Members today.

The hon. Member for Westmorland and Lonsdale (Tim Farron) and I have had ongoing conversations over multiple years. I do not doubt his passion and support for the sector, or how important the sector is for his constituents. He was right to raise the issue of holiday lettings. I understand that he is disappointed with some of the measures that we have brought in, although some of those measures will make a real difference, including the ability to charge more for some rental properties. All I can say is that we are well aware of some of the additional lobbying for proposed changes and, again, that we are always open to further ideas.