As we race into March, what’s front of mind for the hospitality and leisure industries, it’s clear, are the headwinds in which operators and upstream suppliers are facing into, writes Mark Stretton.
Business rates, the rising cost of employment, cost-of-goods increases and the spectre of inflation – against the backdrop of an extremely competitive market – are conspiring to present operators with a cocktail of cost challenges.
Business rates is the big one, with new rates set to come into play in April. Research released by CGA Peach and Barclaycard at the Casual Dining Show last week shows that it is the number one concern for three quarters of business leaders in the out-of-home food and drink market.
You’ll have no doubt seen the headlines but in short, the business rates regime is a broken system that unfairly penalises bricks-and-mortar businesses – particularly successful pubs and restaurants – as it is based not just on property value, but also the trading performance of a business.
As an example, the founders of Yummy Pubs, Anthony Pender and Tim Foster, were telling me that their high-performing Euston pub, the Somers Town Coffee House, is facing a staggering increase under the latest revision of rates that will result in a six-figure annual bill as of April, while a larger pub just 200 metres down the road has a bill around a third the size. Remember this is just rates, coming on top of rent.
Despite the Government claiming that the latest revision to rates will be income neutral to the public purse, it will in fact raise an extra £1bn, with the hospitality industry as it stands set to cough up roughly half of that increase. It will prove an unsustainable burden for some.
David Smith wrote an excellent piece in the Times last week capturing well the woeful shortcomings of what is an outdated system of tax in an online, on-demand economy. Quoting ‘father of modern economics’ Adam Smith, he said taxation should be fair and based on ability to pay: “When Amazon is heading for cuts in business rates on its out-of-town distribution centres and many of the high street retailers it has been helping to make life difficult for face big increases, it is hard to recognise these changes as remotely fair.”
Simon Jenkins wrote similar in the Guardian, referring to the business rates ‘crisis’ and citing the example of a friend who pays £1,400 annual tax to live in one of London’s priciest apartment buildings, while a shop in the same block is facing a new rates bill of £244,000.
Yet the fact that respected and influential mainstream commentators like Smith and Jenkins are addressing the issue in print, is not just indicative of the size of the problem but also reflects the success of the industry’s lobbying campaign, led by the ALMR, to put – and keep – the subject on the national news agenda.
The ALMR’s campaign, spearheaded by CEO Kate Nicholls, has had a very good two weeks, with Nicholls appearing across national media including two appearances on Radio 4’s flagship Today programme. The result has been a clear mood shift in Westminster, with communities secretary Sajid Javid rowing back from his earlier position that the new system was ‘fair’ and the chancellor telling fellow ministers that he was in ‘listening mode’, hinting that some form of relief would be included in the forthcoming Budget.
Now all eyes are on the Budget next Wednesday (8th March) but the message seems to have landed.
For the ALMR, there is much more to be done, but it clearly demonstrates that the organisation has arrived as the voice for the eating-out and drinking-out market. For the industry, it shows the benefits of collaborative campaigning and approaching government with one distinct and loud voice.
To listen to ALMR CEO Kate Nicholls speaking on the business rates issue on Radio 4’s Today programme last week, click here to listen to the full 3-hour programme – the relevant feature begins on 16 minutes and 40 seconds
Mark Stretton is managing director of FSC. Follow him on Twitter @markstretton