Labour Warns That 650,000 Hospitality Businesses Face Possibility of Going Bust

If, as looks increasingly likely, national lockdown keeps restaurants and pubs closed until May, an estimated 650,000 businesses could collapse and more than a million could run out of cash in the next three months, the opposition Labour party has warned.

Led by shadow business secretary Lucy Powell, Labour issued the stark warning after analysing new data from the Office for National Statistics (ONS). Labour has said the government fails to act then it is guilty of “economic negligence”, calling on the business secretary, Kwasi Kwarteng to “be the voice of business, not a mouthpiece for the Treasury.” Because the industry has been forced to feed on leaks and rumour with no official update from ministers on policy or support since 5 January, Labour wants the government to urgently outline how it can and will support struggling hospitality businesses survive the crisis.

Labour analysis has also found that the under current economic offer, the “average hospitality or leisure business would receive £11,000 less during the third lockdown than it did during the first — despite being in a significantly worse financial position now.” It did not point out that businesses are also now committed to National Insurance and pensions contributions for employees on furlough. (Under the terms of that scheme last year, employers were not liable for those contributions.) Some say it now costs them money.

In a statement published this weekend, Powell said: “The Business Secretary needs to stand up for businesses [...] It’s his job to be their strong voice.

“A million firms are struggling with a cash crisis threatening jobs and livelihoods just as the vaccine offers hope. The cost of business insolvencies and unemployment on this scale would take a wrecking-ball to our economy.

“If the Government fails to act on this latest evidence, and doesn’t bring forward an urgent, comprehensive plan, they’ll be guilty of economic negligence that will choke off the recovery, and damage our country for years to come.”

Similarly, the head of trade body UK Hospitality Kate Nicholls has issued a separate warning: After “the worst year of trading on record has left enormous swathes of the hospitality sector on the verge of collapse,” the trade body said. “Businesses urgently require further government investment and support if Britain’s third largest sector can fulfil its potential in helping to drive wider economic recovery.”

UK Hospitality has found that 40 percent of sector businesses say they would fail by mid-2021 without additional support measures. Separately, it found that just 20 percent have sufficient cash flow to survive beyond February under present levels of support.

Overall, the sector’s decline “is likely to have knocked off over two percentage points from total national GDP [...] more than 10 times worse than the impact of the 2008 financial crisis for hospitality.”

Echoing calls from business owners in central London published this weekend, UK Hospitality said that restaurants can begin to recover when it is able to reopen, “but can bounce back much more rapidly with the right support” from now. The trade body, too, proposed an extension to the 5 percent VAT rate for a further 12 months. (The government has indicated it is not willing to sanction this. Yet.) It also asks for a “further business rates holiday for hospitality for 2021/22.”

UK Hospitality chief executive Kate Nicholls said: “Put simply, hospitality is battling for survival. Our sector has been the hardest hit sector by the pandemic and is staring into the abyss. But if the right conditions and support are put in place, we could be justifiably optimistic of the future...

“Lockdowns and restrictions many in hospitality have been unable to recoup the intended benefits” of the VAT and rates cuts. Extending these measures would act as a critical revival system – saving many jobs and setting up the economy for much need job creation for the rest of the year.”

In a year that has seen ministers make too many reactive policy decisions, the government has a chance to pro-actively safeguard the futures of thousands of businesses and jobs. But it doesn’t have long — the next fortnight feels like crunch time. Restaurants and pubs in the U.K. do not have the time nor cash to wait for the government to announce what it will do next on 3 March, over a month from now, when the chancellor is scheduled to deliver the Budget.

And yet, based on the evidence of the past 12 months, it would be foolish to predict that the government provides what restaurants need when they need it.