By Neil Manhas, UK general manager & chief financial officer Europe, Pizza Hut
The Spring Statement delivered some relief to families and small businesses – but forgot to acknowledge the post-pandemic struggles of our hospitality sector. To put this into perspective, in 2020 alone, UK Hospitality quarterly sales tracker estimated a loss of £71.8bn, the equivalent of £200m per day.
Government support throughout this period has helped the industry to rebound as Britain reopened. Yet, it seems, the same cannot be said about today’s mini-budget.
While still welcomed, the 50% discount in business rates to help small businesses, retailers and hospitality providers will barely scratch the surface of the challenges ahead, particularly for larger operators that support thousands of jobs and communities across the country. The Government has ignored the outsized role the temporary VAT cut from 20% to 5% — now at the interim rate of 12.5% — played in the recovery of the sector.
The temporary VAT cut, which is due to expire on 1 April2022, has proven crucial in igniting the economy. It’s helped cushion some of the effects from the last two years by alleviating the impacts of restricted trading and the costs of heightened safety protocols across the hospitality sector.
It has also offered a much-needed buffer for the sector to continue operating amid unprecedented levels of volatility, uncertainty, and complexity, which show little sign of settling, particularly given the tragic events unfolding in Ukraine.
That’s why, from this Statement, the industry was eagerly waiting for a U-turn on VAT hike. With significant inflationary pressure, labour shortages and supply chain issues already hindering the industry’s bumpy road to recovery now is not the time to increase VAT. Doing so would be a barrier to the momentum of growth and progress that the hospitality sector has made in the past year.
Combatting inflationary pressure
Businesses across all industries are already reassessing and revising their budgets for the year ahead as they face unprecedented levels of inflation. For the hospitality industry, the prospects look especially tough. We expect most aspects of our supply chain, including food and packaging, alongside utilities, to see double-digit inflationary pressure. This is intensified by the current crisis in Ukraine, a key producer of wheat, alongside the situation’s wider knock-on effects to supply chains. On top of this, inflation and geopolitical pressure mean we are already seeing fuel prices skyrocket – an out-sized problem for delivery businesses, though one that will impact supply chains across our industry as well.
Against this backdrop, increasing VAT back from today’s rate of 12.5% to 20% could hinder the ability of businesses to stay afloat without passing on additional price increases to consumers. Any such rises are measures we will endeavour to balance – so we can protect value for customers, particularly as households already face enough headwinds in the current climate.
An unwelcome abundance…of staff shortages
Through a combination of Covid and Brexit aftermath – there is real strain on an already-damaging national staff shortage. Across the UK, it is estimated that the labour pool has reduced by over 1 million versus a couple of years ago, with 178,000 positions to be filled in the accommodation and food industries alone. Pizza Hut is actively hiring for over 2,500 roles, with most of these for delivery drivers. With UK inflation outpacing wage growth, hospitality businesses like ours are still struggling to attract new staff regardless of compensation or our best-in-class career development programmes.
An extension to the current VAT cut won’t solely solve the staffing problem, but it will offer a buffer for businesses to flex to retain their staff. It will also give the industry more time to work with the Government on lifting the cap on the number of temporary visas for foreign workers, increase the capacity in HGV driver testing to address the backlog and reduce the strain of driver shortages.
Extending the VAT cut is critical to our momentum
Over the last two years, hospitality businesses have proven their ability to adapt, innovate and respond to the challenges at hand. At Pizza Hut, our franchisees have really come through to drive our growth during this time. They’ve demonstrated resilience and perseverance – supporting the company’s expansion while also contributing to their local communities through free deliveries to the NHS and creating jobs during a time of challenge. But as we enter a new period of uncertainty, now is the time for us to stand behind our franchisees and small businesses across the sector.
We are determined to continue growing this year. Expanding will create more jobs and support more communities across the UK. But we can’t do this without more investment and franchisee buy-in. Continuing the VAT cut will offer our investors and franchisees the confidence they need to support our ambitious post-pandemic goals.
And while there’s much to thank our Government for, we need continued support to overcome these hurdles now and in the future. The Chancellor has a clear opportunity to help rebuild consumer confidence at a time where spending is low, uncertainty remains, and living costs are at a record high.
An extension to the VAT cut is the cushion we need to rebuild our economy and foster consumer confidence, to help us drive employment and continue supporting our communities. As a signatory of UK Hospitality’s #VATsEnough – we’re calling MPs to work with us to help protect jobs, stave off higher inflation, and reignite the economy. Only then can the industry make a full recovery and step confidently into a strong post-pandemic future.