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Wed 15th Mar 2023 - Sector warns further business closures ‘inevitable’ after lack of energy support in Budget but welcomes duty freeze
Sector warns further business closures ‘inevitable’ after lack of energy support in Budget but welcomes duty freeze: Industry leaders have warned further closures are “inevitable” following a lack of energy bills support for businesses in the spring Budget, but welcomed the freeze in duty on draught beer. The lack of help with rocketing utility bills will be a particular blow for sector businesses, with the reduction in support from the end of March forecast to add £4.5bn to bills compared with the current scheme. With a third of businesses reported to be cutting trading days due to spiralling energy bills, a rise in insolvencies for the sector has been forecast. UKHospitality chief executive Kate Nicholls said: “With hospitality businesses continuing to struggle with vacancies running at 56% higher than pre-pandemic levels, the measures announced today are significant in incentivising people back into work and hopefully alleviating crippling labour shortages. The significant reforms to childcare and the measures to help the over 50s re-enter the workforce are both areas on which UKHospitality has been calling for action and we’re pleased the chancellor has recognised the help it can offer tackling the enormous vacancies in hospitality. Maintaining current levels of energy support to consumers, freezing fuel duty and inflation reducing will help hard-pressed households and increase disposable income, which will be a huge boost for venues in desperate need of trade. This will be particularly needed as the sector is still set to see huge energy price increases when current support ends in April, which unfortunately was not addressed. It remains the case that we need to see urgent action on the market failures identified by Ofgem in its non-domestic review update yesterday. The current timeline of further action by the summer is not good enough. The reduction in draught duty is positive and we hope this will incentivise more visits to our pubs, restaurants and hotel bars. Addressing draught duty is a good start, and I would urge the government to consider rolling out this type of tax cut across the wider drinks market. With duty primarily paid by suppliers, such as breweries, it’s essential that any benefit is passed through to venues to help deliver the government’s objective of reducing inflation and growing the economy.” Sacha Lord, the night-time economy adviser for Greater Manchester, added: “While the announcement on beer duties will enable operators to become more competitive against supermarkets and retailers, the current situation for the hospitality sector continues to be dire. In the face of rising bills, business rates and inflation, operators urgently need ongoing support and the chancellor's announcements, or lack of them, will only further frustrate and anger the industry. By its very nature, hospitality is an industry with higher-than-average gas and electricity usage and is a sector that has seen incredible economic damage over the past three years. It is therefore disappointing that the chancellor has not announced a delay to the planned decrease in business energy support or any sector-specific package for the industry. Without energy support, a rise in insolvencies is inevitable as operators conclude the reality of running a business in hospitality is simply no longer financially viable.” Emma McClarkin, chief executive of the British Beer & Pub Association, said: “The cut to draught duty as part of the alcohol duty reform is positive and we hope that it will result in a boost for our pubs this summer. However, the measures introduced today won’t rebalance the catastrophic impact soaring inflation and unfair energy contracts are having on both pubs and the breweries that supply them. As 1 April rapidly approaches, businesses are also nervously awaiting what’s next for their energy costs, and a lack of support in today’s announcement will have a direct impact on their ability to keep their lights on and doors open. The chancellor highlighted how our pubs are the most treasured community institution, and we appreciate his efforts to provide some relief, but a lack of immediate support in today’s Budget will still put the future of many of them at risk.” Sam Martin, chief executive of virtual food operator Peckwater Brands, added: “To allow hospitality to thrive, businesses required a major overhaul of the business rates system, a shot in the arm to staffing and increased support with energy costs. The measures laid out for hospitality in the spring Budget fall short of the level of support that industry leaders have been crying out for over the past year. Hospitality can be a driver for the economy and a source of both jobs and tax revenue, but without the right conditions to grow, we will likely see businesses shut down by high business rates, unaffordable tax bills and short staffing. Short-term support with energy bills may keep the lights on in the coming months, but without further action, the possibility of a return to pre-pandemic levels appears slim. I only hope more can be done to prop up businesses affected by rising costs, and that people will continue to support pubs, bars and restaurants in their communities.” Despite the silence on energy bills support for businesses and business rates, one positive aspect of the Budget for the sector was a freeze in alcohol duty for pubs. Hunt said: “In December, I extended alcohol duty freeze until August, after which duties would go up in line with inflation in the usual way. But today, I will do something that was not possible when we were in the EU and significantly increase the generosity of draught relief so that from 1 August, the duty on draught products in pubs will be up to 11p lower than the duty in supermarkets. It’s a differential a Conservative government will maintain as part of a new Brexit Pubs Guarantee. British ale is warm, but the duty on a pint is frozen. And thanks to the Windsor Framework, that change will now apply to every pub in Northern Ireland.” Hunt also said corporation tax for businesses will increase from 19% to 25%, with firms making a profit of more than £250,000 to pay 25% tax on their profits from April. For smaller businesses, annual investment allowance has been increased to £1m, meaning 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits. The introduction of “full capital expensing” – the only major European nation to do so – for the next three years will be with a view to eventually making it permanent. It means every pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits. Small or medium-sized businesses will also be able to claim a credit worth £27 for every £100 they spend if they spend 40% or more of their total expenditure on research and development. In an effort to get more people back into the workforce, Hunt plans to abolish the work capability assessment and separate benefits entitlement from an individual’s ability to work. He also allocated £400m in funding to increase the availability of mental health and musculoskeletal resources for workers. For people on Universal Credit who are without a health condition and looking for work, Hunt said sanctions will be applied more rigorously to those who fail to meet strict work-search requirements or choose not to take up a reasonable job offer. For those working low hours, the administrative earnings threshold will rise from the equivalent of 15 hours to 18 hours at National Living Wage. In terms of the wider economy, the UK is expected to avoid a technical recession (two consecutive quarters of decline) in 2023, according to the Office for Budget Responsibility (OBR). Hunt said the Treasury-funded public body forecasts the UK will “meet the prime minister’s priorities to half inflation, reduce debt and get the economy growing”. The rate of price rises, or inflation, is forecast to fall from 10.7% last year to 2.9% by the end of 2023, according to the OBR. Despite this, the UK remains the only G7 economy which is still smaller than it was before the pandemic, even after growing 4% last year. But Hunt says the government is “on track”, with underlying debt to be 92.4% of GDP by next year, falling every year after until 2027-28. The chancellor said the government is “meeting our plan” to have debt falling by fifth year of forecast, and that debt as proportion of GDP remains lower than Canada, US, Italy, Japan. He added that underlying debt in three years’ time is forecast to be lower than it was in the autumn of last year. He said: “In November, the OBR forecast UK would enter a recession in 2022 and contract by 1.4% in 2023. Today, it forecast we will not enter a recession at all this year with a contraction of just 0.2%. After this year, the UK economy will grow in every single year of the forecast – by 1.8% in 2024, by 2.5%, 2.1% and 1.9%. They also expect the unemployment rate to rise by less than one percentage point to 4.4% with 170,000 fewer people out of work compared to the autumn forecast.”

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