Business Rates are Set to Rise - How Will the Hospitality Sector Manage?

 

The UK hospitality sector faces a period of instability following the announcement of the proposed business rate increase. Business rates are currently on a rent-based valuation system, which from April 2017, will be reevaluated considering current property prices. As a result, restaurant and pub owners will face a significant increase in business rates, ranging from between 25% and 400% when the new valuations take effect. The worst affected part of the UK is likely to be the South East, where property prices have increased disproportionately over the last seven years.

  • Since 2011, the number of pubs in operation has declined by 7%, and currently an average of 21 pubs per week are closing across the UK
  • Pubs currently contribute c.0.5% of turnover (£21bn) to the UK economy, albeit pay 2.8% of UK business rates
  • In addition, under plans being considered by the Treasury, SMEs could also be forced to calculate their own rates, which could lead to further work in a challenged environment
  • The UK government has proposed to implement a £3.6bn ‘transitional relief scheme’ for all SMEs facing an increase in rates, in which every pub with a rateable value of less than £100k will receive a £1k discount in 2017. Albeit the new revaluations could cost the hospitality industry £500m in additional rates

Following the recent increase in the National Living Wage, along with increases in both training and regulatory expenditure, margins in the sector have come under intense pressure. Consequently, this already challenged sector is likely to see further decline in the face of increasing business rates.

Questions regarding funding and access to capital have never been more critical with increased reliance on lenders anticipated in 2017. Lenders will need to be mindful of the challenges facing the industry and will need to work with their customers to reassess cash flow forecasts to ensure debt serviceability and, where applicable, safeguard against covenants being breached.

Our industry specialists are able to draw upon their depth of understanding of the sector and are experienced in operating in the most challenging environments to assist you and your clients and deliver effective business solutions.

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