Covid supports for hospitality sector

Over the past 18 months governments across the world have had to find novel ways of supporting businesses and workers as economic activity declined due to the COVID-19 pandemic. Governments used fiscal supports to keep companies on life support as economies shut down for extended periods.

As economies reopen and economic life returns to normal, we will start to get a better insight into which policies were effective and which ones failed to deliver.

The different supports offered to the hospitality sector by the Irish and UK governments are particularly interesting.

Policy makers in the UK introduced a more targeted range of support packages. They appear to have identified hospitality as a special case, and although it’s too early to judge the effectiveness of the measures they introduced, there has been some early suggestive evidence that these policies have had a positive impact.

The table below compares the most important hospitality focussed policy differences between Ireland and the UK.

Eat Out to Help Out vs. Stay and Spend Tax Relief

In the UK the government provided 50% of the cost of food and/or non-alcoholic drinks eaten-in at participating businesses UK-wide up to a maximum of £10 per guest on Mondays, Tuesdays and Wednesdays in August 2020. The scheme provided significant stimulus with more than 64 million meals claimed.

It has been estimated that up to 84,000 premises had registered for the scheme by late August with a total of nearly £100 million being sponsored, with the average claim being £5.25.  Restaurant visits increased by up to 100% compared to the previous year. However, it appears that visits may have simply shifted within the week to earlier weekdays and the shift in consumer spending might not have persisted after the program ended.

In Ireland the Stay and Spend tax relief is given at the standard rate of 20% up to a maximum refund of €125 per person, or €250 for a jointly-assessed married couple. The scheme was seen as cumbersome by tax payers with very little take up.

VAT Reductions

Governments in the UK and Ireland both implemented VAT reductions for hospitality businesses, albeit the reduction in the UK was significantly larger.  The logic driving the policy is that a lower VAT rate should lower prices and stimulate consumer spending.

Representative bodies in both jurisdictions campaigned for these reductions.

As at the time of writing it is difficult to accurately measure the impact of these VAT reductions. However, previous VAT cuts in 2008 in the UK did stimulate consumer spending through lower prices, so there is good reason to think that this might happen again. Certainly, the reduction from 20% to 5% is a significant signal that the government in the UK is serious about stimulating recovery in the hospitality sector.

Business Grants

In the UK the government provided very targeted hospitality supports which appear to have helped UK businesses recover quicker than their Irish counterparts. For example, as much as £11 billion was distributed to 880,000 small businesses by local councils in 2020 in the UK.

In Ireland €172.2 million was paid out to 17,100 businesses covering 19,700 premises under the Covid Restrictions Support Scheme. This scheme provided up to 10% of the average weekly turnover of the business in 2019 on the first €20,000, and 5% on turnover over €20,000, subject to a maximum weekly payment of €5,000.

Wage Subsidy Schemes

The differences between the Irish and UK wage subsidy schemes centred around how quickly the policies were implemented and how generous they were. The Irish government introduced the Pandemic Unemployment Payment (PUP) for employees and self-employed people who had lost their jobs from 13 March 2020.

Furthermore, on 24^th March 2020 the government announced a new Temporary Wage Subsidy Scheme (TWSS), through which the State covered up to 70% of employees’ previous net wages for businesses that have experienced a significant drop in turnover as a result of the pandemic (the TWSS was updated on 15^th April 2020 to provide an 85% of net wages subsidy for lower earners.)

The UK announced similar measures to support household incomes on 20^th March 2020. The Coronavirus Job Retention Scheme (CJRS) provides employers with 80% of wage costs for furloughed workers but, unlike in Ireland, doesn’t make wage subsidies dependant on reductions in the employers’ turnover levels. The first payments from the scheme were made on 20^th April 2020.

On 26^th March 2020, a new self-employed income support scheme was introduced in the UK covering 80% of the average profits of a self-employed trader over the last three years. To be eligible, individuals must have received more than half of their income from self-employment over the past three years, have filed a tax return for the 2018/19 tax year, and have average profits below £50,000 per year.

Conclusion

Taking all of these supports into account it would appear that UK policy makers have been more proactive than their Irish counterparts in terms of supporting the hospitality sector during the pandemic.

If you would like to discuss the supports that are available to your hospitality business, please contact Noel Winters

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