According to a new survey, a quarter of UK hospitality companies say they have exhausted their cash reserves, while a further 29 per cent say they only have enough cash to last the next three months, putting thousands of businesses in the sector on the brink of insolvency.
The survey, jointly produced by UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping and Hospitality Ulster, demonstrated the level of cost pressure facing the industry, with calls growing for tax cuts to be introduced by the government in the Spring Budget.
The hospitality sector, along with construction and retail, has been among the worst hit by the UK’s economic disruption over the past two years, facing increasing costs, high tax burdens, mounting debts, as well as lower consumer spending during the cost-of-living crisis.
While there have been signs of the UK’s economy improving at the outset of 2024, this is unlikely to be felt for some time by businesses struggling with a lack of cash and large piles of debt. Reflecting this, the survey found that 64 per cent of hospitality companies are pessimistic about their prospects over the coming year, a six per cent increase on the corresponding figure from October 2023.
94 per cent of businesses polled said that the government should prioritise a reduction in VAT, with the survey also calling for a cut to duties. Hospitality firms argue this would enable them to avoid higher pricing, potentially helping to tempt more customers back to businesses such as pubs and restaurants while lowering their tax burden.
Hospitality businesses face an anxious wait to see if such calls will be heeded by Chancellor Jeremy Hunt before next month’s spring budget, which is set to bring a 6.7 per cent increase in business rates – the property taxes that affect high street businesses.
In a joint statement, the groups behind the survey said: “These results clearly show the perilous state our pubs, restaurants, hotels and cafes find themselves in. The fact that a quarter have run out of cash reserves completely is a real cause for concern.”
“Those businesses are extremely vulnerable to the slightest shock forcing them to shut their doors for good. If the Government want to avoid further inflationary price rises for the public and further closures across hospitality, they need to heed the message from our members to act now.”
The latest figures come after the hospitality sector suffered major insolvencies and rising financial distress during 2023. Figures from real estate services firm Altus Group showed that nearly as many pubs closed down during the first half of last year as in the whole of 2022, while Price Bailey figures found that restaurants shut down at their fastest rate for a decade between January and the end of March 2023.
Overall, according to figures released last month by CGA and Alix Partners, there were close to 3,000 fewer hospitality premises in Britain at the end of 2023, compared to the end of 2022, and 16,000 fewer than in March 2020, when the COVID-19 pandemic hit the country.
The latest survey comes amid a wider backdrop of mounting UK insolvencies, with the CEBR recently forecasting that the UK could see more than 32,000 insolvencies this year, a major increase from the 25,000 seen in 2023.
While the hospitality sector is continuing to suffer, there have been predictions that rising distress and low company valuations could lead to a significant amount of M&A activity in the hospitality industry this year, with investor confidence in the economy increasing and well-capitalised international buyers continuing to target undervalued UK businesses.
Find out more about how rising insolvencies are hitting UK businesses
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