Budget: Hospitality support may not go far enough

The Chancellor has confirmed that the furlough scheme, due to end in April, will be extended in its current form until the end of June. From then up to September, businesses will be asked to contribute a proportion of the money to support furloughed employees.

This will come as a relief to the many retail, hospitality and travel firms that have struggled to foot the whole bill for workers’ salaries following months of inactivity. “A further extension to the furlough scheme is really welcomed but the Chancellor has yet again set a date-based cliff edge of 30 September”, says Milan Pandya, partner at Blick Rothenberg. “The economy will not open up evenly and the hardest hit sectors of hospitality, leisure and tourism will continue to be impacted by social distancing rules”, Pandya argues.

But it will further complicate the dilemma of when these businesses can return to the dividend register. UK companies have long drawn investors with their promises of high shareholder payouts, but several firms that used the furlough scheme have decided to suspend dividends during the Covid crisis.

Many of those businesses that continue to claim government job support will remain wary of being seen to pass state funds directly to investors. We recently asked dozens of listed firms about their plans for reinstating dividend payments; the vast majority of respondents remained undecided on whether to refund the taxpayer before establishing a roadmap for shareholder returns.

Not all businesses equate using taxpayer funds with a moral conundrum, however. JD Wetherspoon (JDW), the pub chain led by persistent government provocateur Tim Martin, claimed it had in fact been a “net contributor” to the state during the pandemic, as the amount the business, its staff and customers paid in tax greatly “exceeded any temporary rebates or furlough payments”.

You can see the responses to our survey here, as well as our breakdown of the biggest furlough claimants on the UK stock market.

For many businesses at the heart of pandemic shutdowns, business rate relief was a more important issue than the furlough scheme extension, so it will have come as a relief that the 100 per cent business rates relief is to continue for the first three months of the year to June. For the remaining nine months of the year, business rates will still be discounted by two-thirds up to a value of £2m for closed businesses with a lower cap for those that have been able to stay open. That marks a £6bn tax cut for businesses, the Chancellor proclaimed .

One of the worst affected sectors has been hospitality and tourism; “150,000 businesses that employ over 2.4m need our support”, Sunak said. A 5 per cent reduced rate of VAT will be extended until September. But the UK won’t go back to the 20 per cent rate even then. A 12.5 per cent interim rate will follow, with a view to not returning to the standard rate until next April.

Non-essential retail firms will also be given grants of up to £6,000 per premises. Hospitality and leisure businesses, meanwhile, will receive grants of up to £18,000.

The chancellor has announced £700m in support for UK arts, culture and sport, plus an extension to the existing £500m scheme for getting film and television productions up and running again. 

As we previously explained by looking at the growth of Korean pop since the 1990s Asian financial crisis, backing the arts in times of crisis can have wide-reaching economic benefits. But the government has faced criticism for not acting soon enough to help the sector.

Contactless spending limit set to rise to £100 

The need for care with a bank card has stepped up a gear with the Treasury’s review on the limit to single payments. Later this year, thieves will be able to spend £100 on stolen cards in one simple tap. 

Contactless payments may have fallen in the last year, but the data is hugely skewed by the closure of pubs, restaurants and decline in the use of public transport, which accounted for 41 per cent of contactless transactions. But in August at the peak of ‘eat out to help out’, the amount spent on contactless hit record levels of £8.4bn. 

The continued digital shift in payments is good news for the giant payment providers like Visa (US: V), Mastercard (US: MA.) and PayPal (US: PYPL) as well as the UK’s smaller banks, which have built far better digital capabilities than their larger peers.