Hospitality Industry: Government Support

Navendu Mishra Excerpts
Monday 11th January 2021

(1 month, 3 weeks ago)

Westminster Hall

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Department for Business, Energy and Industrial Strategy
Mark Pawsey Portrait Mark Pawsey (Rugby) (Con)
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It is a pleasure to take part in this important debate after receiving 50 representations to do so from constituents, including from pubs—The Red Lion in Hillmorton, and The Griffin in Kingsway. I want to talk about the impact on supply, as one or two Members have already done. I spent 30 years as a supplier to the catering trade. In that regard, I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

We often appreciate things when they are not there, and we are missing our pubs, cafés and restaurants right now. When they are not operating, it has a significant effect on the suppliers to the sector. Although I welcome the support that the Chancellor has spoken about—he referred to £4.5 billion today—many of the suppliers are not receiving the same level of support as the trading companies. During the pandemic, we have seen food purchases transferred from out-of-home to in-home consumption, and the beneficiaries have been supermarkets, which have done well out of the restrictions. Most have reported higher sales. For example, Tesco sales were up 11% over the Christmas period.

It is often assumed by many that suppliers and food manufacturers are able to switch production and pivot to supplying retail, but catering and retail products are very different, and as a consequence those businesses are losing out. We have heard about the switching on and off of hospitality, which has led to a great deal of stock being wasted. The food supplier, Creed Foodservice, spoke at the weekend about £6,000 of milk going out of date because of the decision to close schools. It says that it has written off £150,000-worth of food since April.

The business I ran supplied tableware items—things such as paper napkins, table covers and Christmas crackers. I have to say that an awful lot of the crackers that were bought for Christmas in 2020 were not pulled. Now, they can be held in stock and used for another year, but of course that involves tying up capital and taking up warehouse space, which are costs to those businesses.

Food service businesses continue to pay bills such as rent, electricity for chillers and loan payments for vehicles that are often standing idle. Wholesale distributors are usually high-volume, low-margin businesses, and the fixed costs mean that a relatively small fall in sales has a disproportionate impact on profitability. Too long a period without profit will cause many suppliers to fail.

In addition, the catering trade—restaurants and pubs—often use the cash sales generated in the current period to pay for goods received in the previous period when they were trading. That has led to many suppliers becoming banks and funding their customers. There is very little action that those suppliers can take if the hospitality businesses do not have the cash to pay them. I hope that the Minister in his response will show his appreciation for the supply chain, as well as for valued hospitality businesses.

Navendu Mishra Portrait Navendu Mishra (Stockport) (Lab)
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It is a pleasure to serve under your chairship, Mr Stringer. I, too, hope that we can return to virtual proceedings in Westminster Hall, so that all Members and staff can contribute safely amid rising infection rates. I pay tribute to my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) for securing this important debate. I also thank the Mayor of Greater Manchester, Andy Burnham, and his night-time economy adviser, Sacha Lord, who have done so much in recent months to push the Government to provide a fair financial support package and who have set out the scale of the challenge facing my region.

The hospitality industry is a vital part of our economy and a growth industry. It is the fourth-biggest employer in the UK and contributed £133.5 billion to the economy in 2019. My constituency of Stockport is no different from many others in that a significant number of people are employed in the sector, many of whom have written to me to express their concerns about the lack of meaningful support provided by the Government. It is clear that the current measures, such as furlough payments, are little more than a drop in the ocean for many businesses struggling to keep their heads above water almost a year on from the start of the crisis. Far more needs to be done if we are to avoid the industry nosediving and hundreds of thousands across the UK ending up unemployed.

In Greater Manchester, more than two thirds of hospitality operators expect to make or have already made redundancies, 80% of which are in the restaurant sector. The failure of the Government to provide more meaningful support is perhaps why more than a third of businesses believe that they will never return to pre-covid levels, and why the hospitality sector expects to lose about 600,000 jobs by next month.

My constituents want the Government urgently to introduce more supportive measures during this period. For example, in the beer and pub sector, many businesses have called for the beer duty to be cut, for more pubs to be allowed to offer a takeaway service, and for wider financial support measures. That is even more pressing given the precarious nature of the pub industry, which in Stockport alone shrank by 25% in the decade prior to the pandemic. Publicans across my constituency, including Veronica Bell of the Sun and Castle, Pamela Clews of The Grey Horse and Ellen Davies of the Gardeners Arms have continued to go above and beyond to ensure that their businesses survive the crisis.

There is also an important point about supply chain businesses, such as Stephensons in my constituency, which supplies the catering trade across the north-west. Without their efforts, many more local jobs would have been lost and pubs would have disappeared for good from our high streets and communities. However, their hard work alone is not enough. Stockport Council recently made a successful bid for future high streets fund investment. Although that is welcome, it will do little to bring a halt to the significant decline in trade.

I therefore call on the Minister to provide assurances that the furlough scheme will be extended beyond its current deadline of the end of April and that other measures will be taken, such as the extension of business rates relief, until the hospitality sector is fully open again, as well as significant safety net measures such as Government-backed covid indemnity insurance policies like those we have seen in many European countries, including Germany.

Lucy Powell Portrait Lucy Powell (Manchester Central) (Lab/Co-op)
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It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate and thank my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) for securing the debate and for her excellent opening speech. I fully support her comments about remote participation in Westminster Hall.

I thank the instigators of the petition and the 200,000-plus people who signed it. That is an impressive number, but it is unsurprising, given that hospitality is the hardest-hit sector, as well as associated activities such as weddings, events and live entertainment. At the heart of the petition is the fact that people are looking for leadership, which is why they want a specific Minister. They want leadership, focus and understanding. I mean no disrespect to the Minister, with whom I share a lot of these occasions, but what we have had is bits—piecemeal, sticking-plaster support offers—alongside stop-start restrictions that have sometimes felt particularly pernicious for the sector and that have often lacked evidence.

The petition reflects the idea that the Government do not get hospitality in all its forms. As we have heard, hospitality includes lots of different businesses, but at the heart of it are people who have put their life’s work, livelihoods and love into creating businesses that bring people together. Often they have used personal assets to guarantee those businesses.

We have heard that hospitality is a huge part of our economy. It was the third biggest employer before covid, generating billions in turnover and tax. Such businesses make up the heart and soul of our town centres, city centres, high streets and communities. They are a key part of the ecosystem and they bring people and places together. We saw that recently in the BBC documentary that Tom Kerridge, one of the supporters of the petition, presented—it was an excellent programme. There is a wider ecosystem, too, from the supply chain that we have heard about to taxi drivers and security, as well as hotels, events and weddings. Hospitality is a huge, interlinked and diverse sector, and it employs many young people, those from black and minority ethnic backgrounds, and women. It was growing before, and it will grow again.

We welcomed the support that the hospitality sector had at the start of the pandemic. It was the right thing to do then, and it is right now that that support continues. Then, however, cash grant support was worth more. The other packages brought in at the time were designed for a much shorter period of time—loans, deferrals, moratoriums and so on. They are now not fit for purpose after nearly a year and growing of closures and lost trade. That is the key issue, which I think other Members have raised: what was initially designed for three months is now not appropriate for the 12 to 18 months that we are talking about.

Supporting businesses is the right thing to do economically. The Government said they would put their arm around the shoulder of the sector, but that must be maintained. Every previously viable business that goes bust will lengthen and deepen the long tail of recovery. That is not just the Labour view, but the view of the International Monetary Fund, the Bank of England and the OECD. We cannot cut our way out of a crisis. Lots of focus early on was rightly on the furlough scheme to protect jobs, but leading businesses now warn that without further support, those jobs will no longer be able to be furloughed as businesses go bust. A survey out today says 250,000 businesses, many of them in hospitality and associated areas, will fold this year. That is a devastating warning.

Supporting businesses is also the right thing to do morally, because they have closed to keep us safe. It is only right that the Government should step in to support them and keep them going. With light at the end of the tunnel, it is now even more important that there is a proper long-term plan to help businesses survive to that point and then thrive beyond it. I am sorry to say that despite some of the early actions taken, no such plan is forthcoming. We have the sticking-plaster approach to economic support, and there is no plan or route map for reopening. Contrast that with the approach of other countries, such as Germany and elsewhere. Speak to any business and it will say that cash flow is the major issue now. Action simply cannot wait until the Budget, because many businesses will be bust by then.

The furlough extension is welcome, but contributions are now stretching balance sheets. Businesses have taken the loans, deferrals and holidays, and they have not paid the rent, yet it is still not enough. The stop-start nature of the lockdowns has damaged business confidence and liquidity, and we have heard about the costs of restocking and losing stock along the way. Businesses were expecting the job retention bonus, but they had it taken away at the last minute, despite it being priced in. That was all before hospitality lost its golden months of the pre-Christmas trade, so it is no surprise that some of the latest business surveys show that more than half of hospitality businesses have less than three months of cash reserves. Only one in five hospitality businesses has enough to survive until March.

Just this week, we heard of Mitchells and Butlers, one of the oldest and biggest players in the sector, seeking to refinance. It is losing £40 million a month just to stay closed. I do not like to say so, but it feels a little like Ministers are asleep at the wheel. I am sure the Minister will tell us about the billions of pounds that have been spent, but unless the Government set out a long-term plan and a comprehensive framework to see businesses through to the spring, there will be waves of insolvencies and job losses. As somebody asked earlier, that prompts questions about the billions that have already been spent. What was it for if, at the critical juncture, the rug is pulled, and jobs and businesses are lost anyway?

We have to be honest about the announcements that have been made this week. The £9,000 is not available to most businesses; five out of six will get a lot less than that. Even when taken together with the local restrictions grant, it is still a lot less than what was received last time around. It does not even cover businesses in the supply chain, who are again waiting to see whether discretionary grants will come to them; for many, they will not.

What about the medium-sized businesses—the hotels, the chains, the breweries and others? As somebody said earlier, £9,000 is frankly a drop in the beer glass. There is no mention of the excluded, many of whom are associated with this sector. What was an outrage for these people for three months is now economically and mentally fatal for many after nearly 12 months. We called on the Government to begin by using the £2 billion repaid by supermarkets to provide proper support to businesses and the excluded, but they have yet to do so.

I am afraid that a huge amount of business uncertainty lies ahead. The Government urgently need to get ahead of that and make sure there is a comprehensive plan. There is a massive surge of a cash-flow crisis ahead of us, with businesses going bust. In the next few months, we are going to see the end of the evictions ban, the business rates holiday and the Government-backed loans. Corporation tax payments will be due and there will be an end to the VAT cut, the VAT deferral and measures to prevent insolvencies.

Businesses will need to start repaying their VAT deferrals and business rates in April, yet we heard this weekend that hospitality businesses will not even be reopened by then. This is now urgent. Businesses looking ahead at their cash flow are taking decisions about their staff and the future of their businesses today. This cannot wait until March. Something must be done. The VAT reduction will have little benefit for most businesses, because they have been closed during that time.

The failure of the Government to set out what might happen to those deadlines is creating massive anxiety, and will lead to wave after wave of insolvency and consequential job losses, not only extending and deepening the economic crisis, but taking with them all the loans and the previous investment in keeping them going up to this point. It makes no economic sense whatsoever.

Alongside this economic spring plan for businesses, we need a clear route map to reopening, as called for by the British Beer and Pub Association, UKHospitality and others. They want proper discussion now about the route map to reopening. What levels of vaccination, hospitalisations and mortality are needed for reopening, and what does that reopening look like? No household mixing? Substantial meals again? Curfews again? These have all caused extra burden when the evidence is clear.

In conclusion, hospitality businesses and their associated ecosystem need better leadership, focus and understanding. They need cash support that matches business need and revenue loss. There will be no businesses for firms to employ people unless this is done. They need immediate action on the uncertainty created about these cliff edges. That may involve big, creative thinking on some of the big issues coming up the track, with rent deferrals and the huge debt overhang, that will need to be addressed at some point. The Government need to stop their scattergun approach, which leads to sticking-plaster solutions, and come up with a proper long-term plan for this hugely important sector in distress.