Britain deserves a pay rise - who will bear the cost?

The first Conservative Budget for a generation provided an insight into the Government’s intentions for the next five years – higher wages; less tax; less welfare. But what does mean for the Leisure and Hospitality ('L&H') sector, in the short-term?

National Living Wage

The Chancellor’s flagship announcement was that 'Britain deserved a pay-rise' and he promptly introduced a new National Living Wage. This will ensure that over 25's will receive an increased minimum wage, starting at £7.20 from 2016 – a significant increase on the current minimum wage regime. Given the reliance the L&H sector places on employees who typically receive the minimum wage, this measure is likely to represent a significant additional cost and businesses may find it difficult to pass on such extra costs to their customers. On the other-hand, employees should be better off, especially given the expected announcement of an increase to the personal allowance.

Tax Cut!

Perhaps in an attempt to compensate, there was a surprise reduction (again!) in the rate of corporation tax. The rate will fall to 19 per cent in 2017 and to 18 per cent by 2020. Thus, continuing the Government’s stated aim to be the most competitive regime in the G20. Whilst a sceptic could view this reduction as 'playing games' to keep ahead of our G20 colleagues, tax cuts are always welcome and will provide a boost for the L&H sector. A further small cost saving was announced in relation to companies’ annual national insurance ('NI') costs. Currently, the first £2,000 of NI is relieved annually, but this will rise to £3,000, going forward.

Tax Relief

Opening new sites is an expensive business and the annual investment allowance ('AIA') is an important tax relief in providing an immediate 100% tax deduction for qualifying fixed assets. The AIA is currently £0.5m p.a., but this was due to fall to a not so generous £25k next year. However, as expected, the Chancellor has recognised this is not a sensible reduction and has announced that it will fall to £200k, instead. More importantly, the £200k AIA will now be a permanent relief, having previously been 'rolled forward' each budget. Business should therefore seek to take full advantage of the current £0.5m threshold, by reviewing their planned fixed asset expenditure over the next few months, and certainly before 31 December.

Sunday Opening Hours

Another expected announcement was the devolution of powers locally, to decide on extending Sunday trading hours. Whether or not this measure will benefit the L&H sector remains to be seen. However, the first challenge is to get consumers out of their homes on a Sunday. Longer opening hours may be the encouragement that some consumers need to get off the sofa…

'Northern Power House'

The Government is keen to encourage growth outside of the London region. With such growth (provided it is achieved!) comes higher disposable income (in theory!). This may therefore provide the opportunity for L&H businesses to go 'national' and further expand their operations. The Budget was pitched as one for 'the working people' and employees within the sector should certainly benefit. For businesses, however, whilst the corporation tax rate cut should ultimately offset it, the increase in wage costs could have an adverse cash-flow impact, in the short-term.