Harsh winter awaits for restaurants without more help

The Eat Out To Help Out scheme, which offers 50pc discounts on meals, is due to close at the end of August

The Eat Out To Help Out scheme, which offers 50pc discounts on meals, is due to close at the end of August
The Eat Out To Help Out scheme, which offers 50pc discounts on meals, is due to close at the end of August Credit: Dylan Martinez/ REUTERS

If you took an evening stroll through a city centre yesterday, you would have seen groups of people dining alfresco on packed tables dominating newly pedestrianised streets: welcome scenes after the past few months.

The Chancellor’s Eat Out to Help Out scheme, accounting for around 35 million meals in its first two weeks, has been a much-needed shot in the arm for the hospitality industry – undoubtedly one of the hardest hit from the pandemic. Not only has it brought cash through the door and enabled more staff to return to work, it has also helped set the economy on course to some form of normality and encouraged people out of their homes.

But what happens now the scheme is coming to an end? The Chancellor may have fired the starting gun, but the industry and its customers have most certainly not built enough momentum over these short weeks to continue on their own, unsupported.

As we approach the autumn and winter months, these challenges will only intensify, as the changing seasons make outdoor dining near-impossible and the UK summer staycation boom dries up. Consumers will now need to get comfortable eating inside, further limiting turnover, while cafes, restaurants and hotels wrestle with expensive but necessary health and safety measures as well as PPE.

An increasing number of announcements from large firms about long-term plans to work from home also threaten restaurants and casual dining outlets that depend on white collar footfall.

The Government must continue to provide some form of tailored support for this critical industry – one that brings in £1.8bn to the economy every year and employs more than 3.2m people – as it faces this cliff edge, working with representatives to monitor the situation closely and being prepared to act quickly.

It should not rule out future innovative schemes like Eat Out to Help Out, or extending furlough support on a sector-specific basis. Further cuts to VAT, a reversal of the decision to resume business rates next year, or bringing about other forms of targeted relief would all be hugely welcomed. Regardless of the measure, the industry is crying out for some certainty about its future.

While growing, consumer confidence remains fragile, with the risks of a future second wave and regional lockdowns weighing on public consciousness. Lower prices over the month of August may have stimulated some demand for eating out, but this will not be enough to keep many hospitality businesses afloat without significant efforts to maintain confidence, even if all businesses were to pass on the benefits of the 5pc VAT rate to customers.

Meanwhile, the end of the furlough scheme will undoubtedly have a negative impact. Visiting restaurants will become even more of a luxury for many people than it is now.

As attention begins to turn to the forthcoming Budget, it is vitally important that the Government seeks to achieve two key objectives. First, consumer confidence needs to be built. Clarity that the tax burden will not be increased in the short term will encourage consumption – vital given about 70pc of our GDP is consumption-led. Second, many sectors, including hospitality, need a clear framework within which to operate beyond the announced measures that largely end on March 31.

Much debate has already been had around the best way to repay the unprecedented government spending since the pandemic began in March, with some arguing that measures like changes to capital gains tax or pension relief are the answer.

The reality is, against the costs incurred in dealing with the pandemic, changes to these taxes have a marginal impact. Tinkering around the edges will not be enough to make a difference – instead, the Government must focus on creating a sustainable, long-term path out of debt, focusing on boosting consumer confidence and business performance in the immediate term.

Specifically, the Government should consider an employers’ national insurance holiday for the sectors that most need it, including hospitality. This would have an immediate cash impact as NI is paid monthly, reducing the direct cost of employment as the furlough scheme ends.

It is clear that demand for leisure and hospitality is beginning to return, particularly in rural and coastal locations, but business demand is woeful. Conferences and meetings are key to many hotel business models. An incentive as simple as a tax credit to businesses may help drive this activity, while also having the benefit of improving the mental health of workers who can meet each other again.

Lifting or reducing quarantine measures as early as possible and providing longer notice periods for travel restrictions would also help support revenue from international business travellers.

The pandemic is likely to be a feature of day-to-day living for some time yet, with the true long-term impact unknown.

Creating an environment where businesses can thrive, spending is encouraged and jobs are created will give us the best possible chance of growing the economy and keeping tax rises to a minimum while we navigate the challenging times ahead.

As the future of the hospitality industry and the wider economy hangs in the balance, the Chancellor must realise that the time to Help Out this sector should not end on Aug 31.

Marvin Rust is managing director and head of tax at Alvarez & Marsal