Coffer Corporate Leisure Responds to The Budget

March 23, 2011

Disappointed, but not surprised, was the general feeling by the leisure and hospitality sector following the Chancellor’s Budget announcement last Wednesday as Osborne adhered to the duty escalator on alcohol introduced under the Labour government in 2009. This dictates a 2 per cent above-inflation increase, meaning pub customers will pay 4p more this year for a pint of beer, 15p more for a bottle of wine and 54p more for a bottle of spirits starting next week.

And there’s no respite; the duty escalator will continue to raise tax on alcohol by 2 per cent above inflation each year until 2015. With the average cost for a pint of lager at a pub already having risen by £1 in the past decade, well above inflation, this budget has done little for leisure and hospitality operators who have to take yet another blow following the January VAT increase to 20 per cent.

The Government has sought to ease the tax burden by raising the nil tax threshold, so the army of lower paid employees working in the hospitality sectors will benefit in the short-term. However by increasing the burden on those businesses that employ these people with seemingly endless cost increases, it begs the question how they be relied on to sustain the economy? The Budget offers little help to alleviate pressure on operators’ suffering and does little to kick-start consumer spending. Altogether, the net increase in income tax and national insurance against savings for many earners will hit consumer spending further. This is compounded with the recent VAT increase and the outstripping of wage increases by inflation and is a hard combination to bear for operators.

With 4-5% predicted inflation for the year above compared to 1.7% predicted growth in the economy, this further illustrates a very tough trading environment for the leisure and hospitality sector, which employs over two million people and adds £19 billion to the UK economy every year. Operators need more help than they are being offered in this budget to help lead the economy out of recession and creating local jobs at a time when national unemployment levels are so high. In provincial areas especially, the hospitality sector should be better supported in keeping jobs alive and therefore helping to sustain the economy.

On a positive note the increase in EIS relief will help to attract investors in small businesses. With bank debt all but gone for many, raising cash by selling equity in the answer and this tax relief will help. We are helping many small businesses expand in this way.

Notwithstanding the issues facing operators as a result of the Budget, there is a sense of optimism amongst investors within the leisure and hospitality sector. We believe we are now past the bottom of the cycle and investors are piling in to invest in strong businesses. We are now in a recovery phase. Many deals will be done in the months ahead.”