Scottish hospitality and leisure businesses are an integral part of the economy, but recent budget cuts and policy changes announced in the Westminster Autumn Budget and more recent Holyrood Budget could threaten the financial stability of the sector.

Tax breaks and budget cuts would ordinarily be welcome news to struggling SMEs. However, not all of the financial measures that have been announced will extend to those working in hospitality and leisure.

Summary of key policy changes

  • National Minimum Wage: increased to £11.54 and includes 21- and 22-year-olds for the first time. It will also increase to £8.60 for 18- to 20-year-olds.
  • January domestic energy cap: increase of 5%
  • Business tax cuts: In England & Wales, 75% discount on business rates up to £110,000 for retail, hospitality and leisure businesses for another year. In Scotland, business premises valued below £51,000 will have their rates frozen and hospitality businesses on the Scottish islands will be given 100% rates relief (up to £110,000)
  • Full expensing tax break: allows businesses to deduct the full cost of investing in plant and machinery and other types of equipment from their tax bill.

These changes have been announced against the backdrop of the Office for Budget Responsibility report which has stated that economic growth for the five years to 2028-29 will be slower than previously anticipated, with inflation remaining high and interest rates stagnant at 5.25%. Since this report was published, however, inflation has dropped to 3.9% (the lowest rate in two years) and UK interest rates are expected to fall in the new year.

The impact on hospitality and leisure

The increase in the national minimum wage is good news for workers across the country, but more challenging for businesses already struggling with staffing costs. This is particularly true for those in the hospitality sector, which has one of the UK's largest groupings earning the national minimum wage1.

The government is trying to ease this financial burden by extending the discounts on business rates. However, these measures may not be sufficient in the face of the wider economic challenges facing the industry (including the shortage of available workers – a problem which will now intensify once the Westminster government's plan to raise the threshold for skilled worker visa applications is introduced).

The rise in household energy costs over the winter season, coupled with high inflation, will also likely reduce discretionary consumer spending throughout the busy festive period. This will naturally have a negative impact on profit margins which are already strained following Brexit, Covid-19 and the economic impact of the Russia/Ukraine war.

Worried about 2024?

The year ahead is likely to be challenging for many hospitality and leisure businesses. Given the key role this industry plays in the UK economy, it is hugely important that financial help and advice is sought by those struggling sooner rather than later.

It is always recommended to keep on top of your finances and business strategy, even if business is booming. There will always be new opportunities and new innovations to take advantage of, even in the midst of a tough economic climate. Our tailored business advice can help businesses across the full spectrum of financial health.

Originally Published by The Scotsman

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