Budget 2021: Chancellor announces hospitality business rates discount and alcohol duty reform

Chancellor Rishi Sunak announced a business rates discount for the hospitality sector this afternoon as well as plans to reform alcohol duty as part of his 2021 Autumn Budget.

Sunak described abolishing business rates as “irresponsible”, however, he announced that next year’s planned multiplier increase will be cancelled and – most significantly – a year-long 50% business rates discount will be available for the retail, hospitality and leisure sectors. Eligible businesses will be able to claim a discount on their bills of 50% up to a maximum of £110,000.

With the government’s consultation on business rates reform due to be published today (27 October), Sunak confirmed plans to introduce more frequent revaluations every three years from 2023, as well as new investment relief to encourage business to adopt green technologies like solar panels, and a business rates improvement relief.

This will mean that from 2023 every business making property improvements, for example a hotel adding extra rooms, will pay no extra business rates for 12 months.

And on top of cancelling a planned increase in duty on spirits like Scotch whiskey, wine, cider and beer – a tax cut worth £3b – from February 2023 the chancellor announced a reform of alcohol duty, a system he described as “outdated, complex and full of historical anomalies” and detailed plans to create a system that is “simpler, fairer and healthier”.

This will include:

• Stronger drinks will pay higher rates while weaker drinks will pay lower rates, which is expected to lower duty on drinks like rose, fruit ciders, liqueurs, lower strength beers, ciders and wine
• Proposals for extending the principle of small brewers relief to include small cider makers and makers of alcoholic drinks with a strength of less than 8%
• Ending the “irrational” duty premium of 28% on sparkling wines, which will instead pay the same duty as still wines of equivalent strength
• Duty on draught beer and cider served from containers of 40 litres or more will be cut by 5% – the biggest cut to beer duty for 50 years

Chris Jowsey, chief executive of Admiral Taverns, described it as a "fantastic result for wet-led community pubs" which would "give licensees the support needed to rebuild their businesses and continue providing vital support and employment to local areas".

James Calder, chief executive of the Society for Independent Brewers (SIBA), said that while the lower rate of duty for beer sold in pubs was a "huge win for the industry" and hugely beneficial for producers of Real Ale, which is sold in 40 litre casks, most craft keg beer in the UK is sold in 30 litre kegs.

"By amending this lower threshold to 20 litres the Treasury can ensure all independent breweries benefit from this welcome new duty relief on draught beer," he said.

The chancellor also confirmed plans to increase the National Living Wage by 6.6% to £9.50 an hour.

Air passenger duty for domestic flights will be lowered from April 2023, but duty is set to increase on long-haul flights which Lauren Broughton, head of public affairs at UKinbound, said was “a kick in the teeth" to inbound tourism.

Spending on adult skills will be increased over the Parliamentary term by £3.8b, including towards expanding T-Levels and increasing funding for apprenticeships.

The planned rise in fuel duty was also cancelled while increased funding to improve lorry park facilities is expected, alongside an extension of the HGV levy until 2023 and freezing excise duty for HGVs, which it is hoped will address issues of driver shortages.

Although the chancellor said inflation was “likely to rise further” and warned the pressures caused by energy prices and supply chain challenges will take “months to ease”, the economy is forecast to return to pre-Covid levels at the end of the year – earlier than predicted – with growth revised up from 4% to 6.5% and the economy forecast to grow by 6% in 2022.

However, there was no mention of a much hoped-for freeze in VAT rates for the sector.

UKHospitality chief executive Kate Nicholls welcomed the business rates relief announced and said the simplification of alcohol duty was “great news” for the sector, but added that with the hospitality industry still fragile and facing rising costs, it was “imperative” the government went further to support businesses.

She said: “The most effective way to achieve this would be to maintain the current lower 12.5% of VAT for the sector. The chancellor has been bold and radical with alcohol duty – we urge him to adopt the same approach when implementing root and branch reform of business rates, to ensure industries share the burden equally.”

Sacha Lord, night-time economy adviser for Greater Manchester, also expressed disappointment at there being no reference to VAT in the chancellor’s Budget. He said the planned increase to 20% in April next year will see a “surge of operators” close.

He said: "Despite outward appearances and busy nightlife scenes across the UK, the sector is still struggling. Operators will take at least three years to recover from this pandemic and many remain in very precarious financial difficulties which could see them go under at any moment.

"Rises in inflation, supply chain issues and VAT increases are all burdens which are brutally impacting on an already beleaguered sector, and combined will result in venues closing, more staff being made redundant and tax bills left unpaid through bankruptcy.”

Lord added: "On top of this, reports of the impending Plan B measures are also affecting confidence. One thing we have continually asked for throughout this crisis is clarity and advanced notice. Venues are only just getting back to their feet, with the majority still in financial dire straits. To tease them with uncertainty over vaccine passports and the threat of working from home, which will undoubtedly see an exodus of customers for operators who rely on office workers for business, is yet another disservice to the sector."

Helena Hudson, founder of the Real Eating Company, said that any savings off the business rates support would be "more than offset" by the VAT increase, while Ian Wright, chief executive of the Food and Drink Federation, added that the Budget offered "little to address the labour shortages which grip the nation" and was "worryingly short on action to tackle rising inflation.”

Co-founder of AGO Hotels, Viv Watts, said he would have liked to have seen a temporary visa scheme introduced for the hospitality sector to address staffing shortages "and ensure that the industry can meet the growing demand of guests as travel opens back up".

Alasdair Elwick, general manager of the 20-bedroom Forest Side hotel in Grasmere, Cumbria, said the VAT cut extension was "essential to the long term planning and security of our industry" and "would have allowed businesses to forecast effectively to enable a sustainable future for us all".

Peter Marks, chief executive of REKOM UK, added that the business rates reduction was a "short-term fix". He said: For a business such as ours- it will barely offset the very significant increase to National Living Wage, increases that while no doubt are good news for employees across the UK, represent an additional cost to businesses at an already challenging time."

Nick Mackenzie, chief executive of Greene King, highlighted that the cap on the 50% business rates discount meant there will be "little benefit for medium and large pub owning businesses"

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