Ranald Macdonald, owner of the Boisdale restaurants, looks into the future – and it isn't rosy
Hospitality employs 9% of the UK’s workforce. Undoubtedly there will be massive further redundancies within this sector at a phenomenal cost to the tax payer.
We all know that Hospitality has been one of the worst hit sectors in the economy; there have already been estimates of 650,000 UK hospitality sector redundancies in 2020, with hospitality representing one third of all UK redundancies. Few people realise that the UK has provided significantly less support than either the EEC or USA for businesses severely affected by the pandemic e.g. The D&D Restaurant Group CEO, Des Gunewardener, went public recently with a statement that the vast majority of D&D’s pandemic related costs in New York and Paris had been covered by respective government support. In the UK D&D are shut with £1.5m a month of unsupported losses.
A major proportion of UK hospitality revenue is alcoholic beverages. In our restaurants close to 50% of revenue. With net profit averaging below 5% in most restaurants pre-Covid, the idea of banning alcohol sales in restaurants and bars is ludicrous and reflects no understanding of our business. Labour requirements would remain the same and as a proportion of sales would almost double to 50-70%. We would be better off closed. I assume this ill-thought out idea has been dropped, but hold the thought of the government potentially losing a slice of VAT revenue from hospitality for a short period of time.
Our industry is counting on the lifeline VAT reduction from 20% to 5% on food being extended beyond March. As we have not had the opportunity to participate in this offer of extended support during the forced closure this should be a given, along with further business rates holidays. But additional measures are required if we are to avoid the mass unemployment that will kick in after furlough ends and if we wish to allow hospitality to rebuild its finances. The most efficient method to inject funds into hospitality, to where it will count most, is to also reduce VAT on alcohol from 20% to 5% as well. This will not result in discounting, but will instead provide financial support by increasing margins commensurate to turn over allowing trading business to employ more staff and invest in the future whilst replenishing their balance sheets. The first few months will be very difficult. This would allow hospitality to invest in sufficient staff to provide service in what is a remarkably unpredictable business, and will be particularly more so in the period post lock down when more people continuing to work from home and zero tourism will dramatically change business trends.
The UK Government furlough scheme has supported staff, but has not compensated business for the costs of enforced closure as has happened in Europe and America. The much lauded CBIL loans were ultimately incredibly ineffective as they were very expensive and difficult to obtain. Strict commercial bank lending criteria meant that over 100,000 businesses that had not needed a loan pre-covid were unable meet approval for a CBIL loan after the pandemic had devastated their finances. The Boisdale CBIL loan is at 8.9% and the tax payer picks up the first 12 months interest and the 5% arrangement fee. The tax payer then guarantee 80% of the debt. Happy days for the banks! The VAT cut requires no administration, no long bureaucratic process, no middle men, is proportionate to trading and does not exclude the less fortunate. This would be a vitally needed financial stimulus delivered to the heart of the our 4th largest national employer which contributes £160bn to the UK economy.
Also please remember the even harder hit bars and clubs where alcohol is the vast majority of sales. And more so wet led hospitality (64% of UK pubs are wet led) in poorer areas that provide a social lifeline for communities to socialize, who do not have the disposable income to eat out. These businesses are unable to diversify into a food led operation as there is not sufficient demand or they do not have the facilities to do so. Hence massive closures in this sector, less local employment and a loss of premises for communities (an older demographic with less affinity to the potential refuge of social media) to gather. I can only imagine that puritanical zeal is the reason for these businesses being ruled as being unworthy of support.
It is time we take stock of the facts and act.