Bars and restaurants feel the shock of last week’s budget announcement

Despite the measures in chancellor Rishi Sunak’s Spring Statement, it is going to be a tough year for consumers and the hospitality sector alike.

After the smoke of Sunak’s rhetoric cleared, the numbers remained extremely painful. Many food and drink outlets are unlikely to survive. Shares in hospitality groups such as JD Wetherspoon, Marston’s and Mitchells & Butler all fell as the chancellor sat down.

The independent Office for Budget Responsibility says that living standards will fall this year by the biggest amount since records began in 1956. Households will see their incomes fall by 2.2% in the next 12 months.

Before Sunak’s announcements, the Institute of Fiscal Studies had calculated that previously announced increases to income tax, national insurance and corporation tax would cost every adult in the country about £1,000 this year.

Paul Johnson, the IFS director, said: “Rishi Sunak has announced more tax increases in his two years in charge than any chancellor in modern times over the whole of their tenure.”

And the Office for Budget Responsibility calculates that the measures in Sunak’s Spring Statement would offset only about a quarter of the tax rises he announced last October.

It is believed that households will suffer a £500 hit to incomes this year and that the overall tax burden on society will remain at the highest level since the 1940s.

The chancellor went some way to reducing the pain of soaring prices but most people will find themselves heavily out of pocket.

That will put extra pressure on household budgets and mean much reduced disposable incomes to spend on leisure.

Sunak made great play about his one-year-only 5p per litre cut to fuel duty, which will reduce the price of motoring by about £100 a year. But he omitted to say that at more than £1.60 per litre, petrol will remain at record high prices and that his duty cut will be covered by the extra VAT windfall he is reaping on fuel as a result of the heightened pump prices.

They are at record highs having increased by almost 12% in March alone before Sunak’s cut.

Much the same applied to his up-rating of the national insurance threshold. That, he calculated, would save an employee about £330 a year, but against that must be set the extra levy on earnings to fund the NHS and long-term care which comes into force in a few days’ time.

The Treasury calculates, however, that 70% of National Insurance payers will pay less, even accounting for the introduction of the Health and Social Care Levy

On top of that comes the 54% rise in energy costs starting this week as the result of soaring global oil and gas prices. That equates to around an extra £800 a year for the average household with the probability of more to come in the autumn.

While the national living wage is going up by 6.6% to £9.50 an hour this week, Sunak himself noted that inflation would average 7.4% this year, its highest for 30 years, thus further eroding  real incomes. Some economists predict that prices could even rise by 10% this year.

Real wages are about 3.4% above pre-pandemic levels, but the average price of restaurant meals is up by 5.2% since March 2020, while alcoholic drinks cost an extra 2.7%.

So at a time when businesses have already put up prices to keep pace with inflation, soaring energy costs have already forced some hospitality businesses to raise their prices and cut trading hours.

Results of a joint poll released on the eve of Sunak’s speech by UKHospitality, the British Institute of Innkeeping, the British Beer and Pub Association and Hospitality Ulster revealed that 76% of businesses are mitigating skyrocketing energy costs by reducing their gas and electricity usage and raising prices, while 38% have cut their trading hours.

So how far did Sunak go to aid the sector? No great strides but a couple of small steps forward.

He had already pledged to peg duty rates on alcohol as part of his controversial reforms to the excise regime but the biggest step everyone in hospitality hoped he would take would have been to peg the VAT rate on food and drink to 12.5% rather than letting it return to the standard 20% as planned.

On that he was silent so hopes were dashed.

UKHospitality said that ending the 12.5% rate would “jeopardise jobs and restrict the sector’s efforts to stifle price rises for consumers.

“Thousands of jobs could be lost” it said.

“Already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.”

The British Beer and Pub Association also deplored the failure to peg VAT on food and drink at 12.5% but welcomed the increase in Employment Allowance, the raised threshold for National Insurance contributions and the fuel duty cut.

However, it said: “These will do little to help the bottom line for thousands of pubs and brewers around the country struggling with increasing overheads and concerned consumers.”

Sunak said that his 50% business rate cut for small enterprises would save the average pub with a rateable value of £21,000 about £5,200 a year but against that landlords face a multiplicity of extra costs, not least the 6.6% rise in the national living wage they must pay, plus the huge jump in energy costs facing everyone.

Eligible employers will be able to reduce their employer National Insurance bills in a tax cut the Treasury says is worth up to £1,000 per employer. As a result, it believes businesses will be able to employ four full-time employees on the national living wage without having to pay employer national insurance contributions.

That may benefit national chains but smaller hospitality outlets are more reliant on part-time staff so the measure is of little benefit to them.

Brewers and wine and spirit suppliers are themselves struggling to peg costs of raw materials such as barley and glass for packaging as the result of the pandemic; to those problems they must now add the renewed price pressures imposed because of Russia’s invasion of Ukraine.

Even before Putin invaded, suppliers were openly talking of price increases of 5% or above this year in the face of cost inflation.

Now that looks like the minimum level needed to go only some way to protecting their own margins.

The temporary petrol duty cut will save about £1,500 a year on costs for the average delivery lorry but hauliers and delivery companies will need to charge more than that to maintain their margins.

So input costs for struggling hospitality outlets are rising steeply and they are faced with the dilemma of increasing their own prices to increasingly hard-pressed customers or taking a hit to their own profitability.

The BBPA says that since the onset of coronavirus in March 2020, some 800 pubs have closed their doors for good. Thousands of restaurants and cafes have also shut, although many have reopened under new ownership.

But the reality of the next year is that many more will have to close their doors for good.