Ahead of the Chancellors Autumn Budget, Tom Roach, Head of Leisure and Tourism at PKF Francis Clark takes a look at the sectors’ journey through 2018 so far and considers what hoteliers in the South West might like to hear from Philip Hammond on the 29 October.
Trading in the first part of 2018 was well down on prior years, with our South West hotel database showing cumulative occupancies to May down by as much as six percent. Things have recovered over the summer and the year to date statistics are now showing a fall of less than one percent.
Profit and loss show a drive towards more income from bed spaces, but increased competition in the food and drink areas. Secondary spend on spa and other recreational provisions were also down, which is likely to be due to holiday-makers taking advantage of the weather and venturing outside of the hotels during the day.
Secondary activities are also finding costs to be higher, principally due to living wage pressures. Up until this year, there has been little movement in the wages to turnover percentage, as hoteliers pushed tariffs and occupancies improved which helped to mitigate wage pressures. We have seen the National Minimum Wage go from £6.70 in 2015 to the National Living Wage of £7.83 now, with further increases in the offing. The wage percentage is a crucial measure of business performance and it is now not uncommon to see this in excess of 40%. Indeed some of the most successful hotels in the area are around this level as they seek premium service for premium price.
I think hoteliers would like to see a VAT reduction from the Chancellor, the argument being that this would make the playing field with Europe more level. However, government policy is more about pushing for increased productivity and investment, which arguably VAT reductions would not achieve. In fact, this could be fairer for the VAT threshold to fall, bringing all accommodation providers within the VAT regime. Arguably, this would provide a fairer position in the domestic market. It would also improve productivity as businesses currently producing incomes up to the VAT threshold would be more inclined to push beyond this level. If this were coupled with a raising of the VAT flat rate threshold from £150,000, this could reduce bureaucracy for businesses which is another government mantra.
There has also been much in the press about the market disrupters such as Airbnb. The increasing ability for HMRC to look at digital records would seem to make it relatively simple for taxation at source of incomes through online providers. A flat rating of this could also simplify things. Again, this could help level the playing field for accommodation providers who will have been affected by online providers.
Finally, we are seeing increased use of imaginative debt. The outlook for interest rates remains very low, which has meant numerous new sources of debt finance entering the marketplace. We have online facilities that provide access to nearly 200 debt providers, from factoring to crowd, from stock finance to cash flowing PDQ receipts, the options are considerable and used responsibly can provide some major solutions to individual situations. However, the opportunities are open to abuse and mean businesses can afford to run at lower profit levels, meaning the more responsible businesses have difficulty competing. Due to the nature of the funding requirements, this is something that is particularly prevalent in the food and drink sector.
PKF Francis Clark will be keeping a close eye on the Budget and providing updates both during and post the announcement on the 29 October. Keep up to date with them on Twitter, LinkedIn and on their live blog.