Coastal Tourism and Hospitality: Fiscal Support

Simon Jupp Excerpts

Thursday 22nd February 2024 Westminster Hall

[Selaine Saxby (North Devon) (Con)]

I beg to move,

That this House has considered fiscal support for tourism and hospitality in coastal areas.

It is a pleasure to serve under your chairmanship, Mrs Cummins. Today I wish to highlight the vital role of hospitality in our coastal communities, such as my North Devon constituency, and the support that the sector needs and deserves. I thank UKHospitality for its ongoing work and support on this matter. I had the opportunity to bring Kate Nicholls, its chief executive officer, to North Devon last year to meet some of the fabulous hospitality businesses and hear their frustrations as well as their plans for the future. We visited businesses such as the Saunton Sands Hotel, the Carlton Hotel and the George & Dragon in Ilfracombe, and SQ Bar and Restaurant in Braunton.

Some of the challenges facing the sector are not always obvious, particularly in remote coastal locations. Hospitality venues extend far beyond just pubs, hotels and restaurants, and include holiday parks, music venues, bowling, children’s play centres, bars and clubs, which contribute so much to all our enjoyment of coastal areas and resorts as well as to the economy.

I have been lobbying Ministers for quite some time to continue to find solutions to ensure that this vital part of the economy of North Devon and so many other coastal areas continues to thrive. I thank this Minister—the Financial Secretary to the Treasury, my hon. Friend the Member for Mid Worcestershire (Nigel Huddleston)—who I know is a champion for the sector, for his ongoing patience and engagement in listening to my concerns and those of my constituents.

My hon. Friend visited Ilfracombe back in 2021 in his previous role as Minister for tourism. We met several business owners and discussed business rates, VAT thresholds and Ilfracombe’s ambitions in hospitality. I am sure that he recalls the unanimous voice of Ilfracombe’s tourism sector calling for the Government to raise the £85,000 VAT threshold, which currently sees much of Ilfracombe, like so many coastal communities, close its doors when the businesses reach the threshold. When first elected, I naively thought that that was just seasonality, but as staycations came back into vogue post pandemic, we saw some businesses close in mid-August as the threshold was reached. Indeed, a local accountant told me just last weekend that he advises all his hospitality businesses to remain below the threshold. At a time when we are looking for our economy to grow, why do we have a threshold that creates a cliff edge that does the exact opposite for the hospitality sector?

North Devon alone is home to nearly 2,500 hospitality venues, employing more than 8,000 people and contributing more than £400 million to our local economy. The hospitality sector’s success is vital for economic prosperity and plays a crucial role in shaping the very essence of our community. Yet despite the resilience inherent in the sector, recent years have presented unprecedented challenges, particularly in our coastal towns. The impacts of the covid-19 pandemic, coupled with the energy crisis and a labour market grappling with record vacancy levels, have stifled growth and posed significant threats to the sustainability of hospitality businesses—but I also want to draw on the positives that have happened. With all the challenges presented, the Government supported the sector substantially during the pandemic, not least with the furlough scheme, which continued even if hospitality venues were shut.

[Simon Jupp (East Devon) (Con)]

I thank my hon. Friend for securing today’s debate. She is making a barnstorming speech about Devon, which may even make me traipse slightly further north in Devon to her constituency to help out her industry. As we know, the hospitality and tourism industry in Devon supports thousands of jobs. As chair of the all-party parliamentary group for hospitality and tourism, I want the Government to build on the record that she has been describing of support for the industry in Devon and the UK. The trade association UKHospitality—whose CEO, Kate Nicholls, my hon. Friend has already mentioned—has three asks of the Chancellor of the Exchequer for the upcoming Budget: first, implementing a 3% cap on the increase in the large property business rates multiplier; secondly, introducing a cut in the lower rate of employers’ national insurance contributions to 10%; and thirdly—this is a big one—permanently reducing the VAT rate for hospitality businesses to 12.5%. Does my hon. Friend agree that those measures would really help and provide a big boost for jobs and investment in her part of Devon and my part of Devon?

[Selaine Saxby]

I thank my hon. Friend and neighbour for his contribution; it is as if we both speak to the same group! I agree entirely with his contribution, as I so often do. I am very keen that Devon hospitality businesses, right the way across and down the peninsula, can benefit, and that the Minister will hear our asks.

We cannot underestimate the pandemic’s impact on businesses. The hospitality sector came out of covid-19 heavily indebted. I hope that the financial sector can look at what more can be done to support hospitality businesses to repay their debts, which currently stand at £8 billion in bank debt and £2 billion in landlord debt. The pandemic harmed hospitality businesses and made their recovery much more difficult.

Although I warmly welcome the small business rate relief that was introduced in the autumn statement, which provided some support, up to two thirds of hospitality businesses find themselves excluded—not due to generating immense profits, but because they operate in larger premises in high-footfall areas. Consequently, the impending 6.7% rise in business rates and skyrocketing wage costs present a daunting prospect for the survival of many businesses.

While I applaud the Government’s commitment to creating a higher-wage economy, it is crucial to acknowledge the unique challenges faced by hospitality businesses, especially those based in coastal areas like my North Devon constituency, which are often small in scale, seasonal and working to tight margins. These businesses anticipate a 17% increase in staffing costs from April, with 98% of them expressing concern about how to manage the impact of the upcoming national living wage hike. Many of the businesses that should have benefited the most from the small business rate relief actually face wage rises in the hospitality sector that far exceed the business rate relief itself.

We are already seeing hospitality businesses contracting their hours and reducing the number of staff they employ or the hours that they work. Far too many of our pubs are now open at weekends only or cannot find chefs, so have some nights without food service, which reduces their profitability even further.

Although the national living wage hike was warmly welcomed by the hard-working teams who work across our hospitality businesses, it is a headache for business owners, who themselves frequently earn significantly less than the national living wage, due to the extensive hours they work and a reliance on their businesses’ ever- declining profitability to pay their wage. Far too many of our hospitality businesses face a crunch this April. Too many of the sums that we do up here rely on a 35-hour working week. Hospitality is a 24/7 business, and in remote coastal areas with low unemployment, such as my North Devon constituency, many members of staff are also much younger. The increase in the national living wage will hit those businesses particularly hard.

One key ask today is for a cut in the lower rate of employer national insurance contributions to 10% and consideration of increasing the threshold in order to share the burden of this policy between business and Government, but the biggest ask from my hospitality businesses across North Devon—I had the pleasure of chatting to many landlords in some of the fabulous pubs back home during the recess—is because their VAT burden is too high. In the hospitality sector, VAT is significantly higher than it is elsewhere in Europe, putting us at a competitive disadvantage. During covid, we saw huge success from the reduction in VAT for the hospitality sector. In that time, 70% of hospitality businesses benefiting from the VAT cut passed it on to consumers, in order to keep prices low. A hugely successful local pub shared its figures with me. With a turnover of just over £1 million, it is paying 25% in tax just in VAT and employment taxes. That is a quarter of a million pounds going to the Exchequer before payment of bills and wages, and payments to suppliers, are even considered.

Last year, we lost 3,000 hospitality venues in the UK, and I am concerned that if the Government do not take further action to share the burden of this tax cost, we may lose even more this year. Unfortunately, there is one recent case in my North Devon constituency; Broomhill Estate is closing due to VAT costs. I thank Alex Kleiner for all his work and for letting me know how much of an impact a reduction in VAT from 20% to 15% would have made to his business. I heard directly from Alex, a business owner, that there would have been three benefits: a reduction in absolute VAT; an impact on cashflow; and an uplift in footfall because of more attractive pricing, although that is harder to quantify. He said in

“4 out of the past 7 quarters 5% VAT reduction would have completely offset my electricity bill.”

Unfortunately, in this instance any changes to VAT will come too late for such an important landmark in North Devon.

Although I know that it is a big ask, I hope that the Treasury might again consider a reduction in the VAT rate for the hospitality and tourism sectors—to 12.5%—as that would help them to overcome the above inflation increases in tax and the national living wage, avoid further inflationary price spikes and unlock investment. The measure aligns with international standards, stimulating tourism and offering domestic tourists a more affordable alternative to travelling abroad. I am confident that not every publican and hotelier is wrong in telling me that this is the one measure that would help them the most. A cut—even a temporary one—would be a boost.

For so many coastal communities, their tourism industry has changed since the hotels were built in the Victorian era. Many have large properties that may not benefit from all-year-round occupation, particularly in those communities where swathes of the tourist attractions, shops and restaurants have closed for the winter because of the VAT threshold issue. Hospitality businesses rely on space to host people and therefore have larger premises in high-footfall areas. Businesses in the industry will often hit the upper rateable value band at a far lower turnover or profitability than others. The hospitality sector pays 2.5% of turnover on business rates, which is 10 times that of banks and insurers. I hope the Treasury is looking at the introduction of a cap on the increase in the large property business rates multiplier at 3% in England, aligning with the expected inflation rate in April. Additionally, I hope the devolved Administrations in Scotland and Wales pass on the benefits of that relief in full.