Rishi Sunak has a golden opportunity to appease the sector with his Budget, says Rajeev Shaunak, head of travel and tourism at MHA
Next week (October 27) the most popular member of the current government, the chancellor Rishi Sunak, will announce his autumn budget proposals.
Figures in the realm of £7 billion of ‘help’ already given to the travel sector to cope with the Covid-19 pandemic are often quoted by the government, but many in the industry feel this ‘help’ has passed them by without notice.
This budget is a real opportunity for the Chancellor to improve his popularity with the travel industry, but the real question is: will he do enough to win it over?
The sector needs the chancellor to sit down at the end of his budget speech having increased consumer confidence that 2022 is going to be a better year than the last.
With fears over inflation growing, increasing living costs and a potential energy crisis, the Budget must offer hope for, not fear of, the future.
Add the increase in both employer and employee national insurance payments, which will start to be felt in six months’ time, and tougher times might yet be on the horizon.
The chancellor’s options may be limited this time around, but many travel businesses are still in intensive care and need genuine support if they are to make it to better times.
Indeed, the travel industry needs immediate help to recover from the ongoing pandemic.
For example, a reduction or suspension of Air Passenger Duty (APD) would be a good move to stimulate demand and keep more people in work.
However, APD reductions have been asked for and denied every year for the last 10 years and, with Glasgow hosting COP26, the UN conference on climate change next month, a reduction in such tax is perhaps an unrealistic expectation.
It may be that the best that can be hoped for is no further increases in the duty, which must remain a possibility as in a good year it is an easy £3 billion in the chancellor’s pockets.
Although travel companies have seen an increase in customers’ enquiries after the recent changes in both the traffic light system and the advice of the Foreign, Commonwealth & Development Office (FCDO), many bookings are being made with Refund Credit Notes issued in the last couple of years as holidays and flights were cancelled due to the pandemic.
As such, cash flow remains a genuine issue for many firms.
One thing that could really make a difference to many businesses, and not just in the travel sector, would be an extension of business rates relief and an urgent review of its future.
There have been many previous promises for the publication of a review of business rate relief, but actual action is what is needed.
It may be too early to expect tax cuts in this budget – they, curiously, tend to come just before an election – but, as travel becomes an increasingly technology-based industry, an increase in research and development (R&D) relief would be a welcome move.
We know that, after 18 months of virtually no new business, many employees working in the travel sector have left to seek greener pastures and labour shortage cracks are already beginning to appear.
With the government apprenticeship scheme, which offers £3,000 per apprentice, due to end in January 2022, things are not looking rosy for new entrants in the industry.
An extension to both the apprenticeship scheme and the Kickstart programme for 16–18-year-olds could ensure more travel businesses take advantage and help train the next generation of travel experts.
We should also not forget that during the pandemic the government provided funds for local authorities to offer support to SMEs.
A continuation of this support for travel businesses would go a long way to encourage many owners, who remain genuinely worried about their future, to keep going and not give up in the face of higher demands from banks, trade associations and regulators.
There does appear to be genuinely strong pent-up demand for travel. Consumer spending on UK vacations and leisure activities boosted the economy in the last few quarters and the World Travel & Tourism Council (WTTC) has gone as far as to suggest that the travel sector’s contribution to the UK economy could rise by 32% year on year, with at least a good portion of that being domestic travel.
This budget presents a golden opportunity for the chancellor to show he stands by the travel sector.
He needs to ensure that the industry, which has been battered by too many factors outside of its control, is strong enough to survive, can meet future demand and has a chance to make a positive contribution to the country’s economic recovery.
The best way to do this is to freeze – if not reduce – taxes, such as the 5% VAT hospitality rate, employers’ national insurance and corporation tax, as this would allow businesses to maintain good cash flows as well as boost consumer confidence and enhance job security.
There have already been worrying talks of potential rises in interest rates which will hit anyone with a debt or mortgage, so any measures that help offset a squeeze in disposable income are also necessary.
For example, an extension of the increased nil rate band for stamp duty on residential properties and a continuation of the 5% VAT hospitality rate would be meaningful steps to ensure that consumers are able to afford holidays and support the revival of the UK travel industry.
Unfortunately, the chancellor has previously indicated that pent-up consumer demand, coupled with an increase in savings for many households over the lockdown period, means no additional support is needed to encourage consumer spending.
However, this reasoning ignores several behaviours we are currently seeing, including consumers’ propensity not to spend but rather hold any savings for a rainy day following the recent Covid-19 storm, as well as the fact that many households have seen their incomes fall due to furlough or job loss and Brexit uncertainty (yes this is still a thing).
Consumers need encouragement and positive action to give them the confidence to unbutton the hatches and start spending.
Less is not more for the sector in this budget.