Britain on tenterhooks as it awaits budget announcement
At a time when consumer confidence is already at a record low, this Thursday is crunch time for many thousands of businesses in the hospitality sector.
The Chancellor, Jeremy Hunt, will unveil on Thursday just how much pain Britain’s households will face over the next couple of years to repair the gaping hole in the national finances. Estimates are that he needs to find between £50 billion and £60 billion per year.
The portents for restaurants, pubs, clubs and hotels are far from good.
Already Hunt has warned that his measures will hit everyone in the pocket. The Bank of England says households are facing the worst squeeze on their real incomes since the end of the Second World War.
One estimate suggests that the average family will be £800 worse off next year as inflation further erodes the value of incomes which are already being squeezed.
But that is hardly the full picture. Apart from the rises to personal taxation Hunt imposes, some 8 million people on fixed rate mortgages will need to find the estimated £3,000 a year of extra interest payments when their deal ends as a result of the Bank’s latest rate rise. And it has promised further hikes as it combats inflation.
Two million households on standard rate mortgages are already being hit by the higher rates and the 40% of Britons who live in rented accommodation could soon face higher charges from landlords whose properties are mortgaged.
But not only will people be struggling to make ends meet as inflation tops 10% (with the inevitable impact that will have on spending in hospitality venues), but they will also be wrestling with the soaring cost of energy, which Hunt has promised to peg only until April.
In its latest report to shareholders, Sainsburys said there was some evidence that consumers were bringing forward some of their Christmas spending, presumably while they have the funds to do so. On the other hand Tesco has noted a switch to own label and economy lines.
It seems that Britons seem determined celebrate Christmas as best they can and worry about the cost implications when the credit card bills land in January. The early months of 2023 could be very bleak indeed as the hit to disposable incomes take full effect.
Traditionally January and February are the quietest months of the year but the run up to Easter could be dire indeed.
The October Hospitality Market Monitor showed there were more than 11,000 fewer licensed sites than in March this year, a net decline of a closure every hour.
For its part, the Insolvency Service reported a 46% increase in the number of restaurant and food outlets entering liquidation in the three months to September, usually one of the busiest periods for the sector.
Many surviving outlets have acted to curb costs through measures such as restricted opening hours and by cutting staff. Some hotels have shut some of their facilities or closed their doors until the spring. But for many that will not be enough.
With the soaring cost of energy and wholesale prices for food and drink, more than a third of the UK hospitality sector is at risk of financial failure according to the latest combined survey by UK Hospitality, the British Beer & Pub Association, the British Institute of Innkeeping and Hospitality Ulster.
That showed 35% of venues expected to be operating at a loss or to be unviable by the end of the year while 76% were already experiencing a decrease in the numbers eating and drinking out with 85% expecting the trend to worsen.
The four trade bodies said: “It is looking incredibly likely that we will lose a significant chunk of Britain’s iconic hospitality sector in the coming weeks and months.”
They called on Hunt to extend the current programme of business rates belief beyond April but given that he has already he has scrapped the freeze on excise duties planned by his ill-fated predecessor, hopes are not high that he will extend an already costly measure.
Most pubs have seen their costs soar. Their energy costs have doubled in the past year and the 50% business rates relief package (up to a total of £110, 000 per enterprise) ends in April. The national minimum wage for adults went up by almost 10% in April and further increases will come by Easter.
Meanwhile, proprietors face the same pressures on their finances as consumers as banks increase interest rates on commercial loans and major drinks suppliers hike their wholesale prices to protect their own margins.
Are there any upsides? Perversely, there may be.
Unemployment is at a low, but is expected to rise sharply, especially in hospitality, unless Hunt brings in measures to help. So the struggle to find skilled staff may ease a little. The Office for National Statistics said there were 178,000 vacancies in hospitality at the end of February and there has been little improvement since.
However, closure of rival businesses in an area may mean some extra custom (from a dwindling pool of people eating and drinking out) for the survivors, who may also find their staffing problems becoming less acute.
And as was seen during the pandemic lockdowns, people switched to the off-trade for their alcohol. Even as the recession deepens the big drinks groups report that trading up is continuing with little sign of consumers resisting higher prices.
That is likely to benefit supermarkets but is further bad news for on-licensees.
Hunt has promised to review the support package for commercial energy costs in the New Year, but that leaves uncertainty. Nor is he likely to introduce a support package similar to “Eat Out to Help Out” brought in by the now Prime Minister Rishi Sunak during the pandemic.
But with more than 2.5 million people, some 8% of the working population, employed in hospitality he will be aware of the political and social implications of the sector being hard hit.
So he has a delicate balancing act to perform. We will find out how skilled he is at tightrope walking on Thursday.