Examination of Witness

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill – in a Public Bill Committee at 3:03 pm on 6th July 2021.

Alert me about debates like this

Kate Nicholls gave evidence.

Photo of David Mundell David Mundell Conservative, Dumfriesshire, Clydesdale and Tweeddale 3:43 pm, 6th July 2021

We move on to our fourth witness panel for this afternoon. The next witness we will hear from is Kate Nicholls, the chief executive of UKHospitality. We have until 4.45 pm for this session. Ms Nicholls, could you formally introduce yourself for the record?

Kate Nicholls:

I am Kate Nicholls, chief executive at UKHospitality, the national trade body representing hospitality businesses—pubs, clubs, bars, restaurants, hotels and holiday accommodation. We have 700 member companies, which between them operate 95,000 sites across the UK, which is about 90% of the total hospitality market.

Photo of Jeff Smith Jeff Smith Shadow Minister (Housing, Communities and Local Government)

Q Welcome, Kate. We are keen to get the view of business about how this legislation will affect businesses. Of course, UKHospitality will primarily be about hospitality businesses, but I am sure that you have supply chain businesses—and you will certainly be concerned with supply chain businesses that are some of the targets for the funding in this package.

I suppose my first question is this: what is the general view of UKHospitality of the measures, allied with the £1.5 billion funding package that goes with them?

Kate Nicholls:

The key point that we would make is that we have had a high degree of support from the hospitality sector and the supply chain that goes alongside it throughout the course of the pandemic. We have a challenge in the supply chain in so far as the discretionary grants made available to our businesses within the supply chain have been allocated by local authorities, and by and large that has not flowed through as swiftly or as seamlessly as could possibly have been the case.

In addition, the business rate support made available to the supply chain businesses, and those businesses operating in the wider hospitality community that have been excluded from the hospitality and leisure grants, is not flowing through to the level that it needs to. Perhaps that is an indication of the large volume of businesses that are trying to get to grips with things and trying to get part of the wider funding available. There is a relatively small pot for a large number of businesses, particularly small and medium-sized enterprises.

Photo of Jeff Smith Jeff Smith Shadow Minister (Housing, Communities and Local Government)

Q I suppose the question that follows on from that is this: if the discretionary grants have not really been swift and seamless, as you have said, for various reasons, what lessons can we learn in trying to put in a regime for the grants that go along with this package to help businesses and local authorities in particular to manage the grant regime better?

Kate Nicholls:

Part of what would be really helpful would be to have greater guidance made available to local authorities about the types of businesses that are particularly impacted by the pandemic and particularly dependent on the hospitality sector.

Hospitality is quite unique in that it has a supply chain that almost exclusively derives its income from hospitality businesses; with hospitality businesses, either 90% or 100% of their income comes from hospitality, but 75% of supply chain businesses within the sector gain more than 80% of their income from hospitality. More detail needs to be given to local authorities. Local discretion is meaningless unless you have really clear national guidance about the type of businesses that are to be supported and the impacts that they have had.

Greater clarity and economic advice centrally would help, as well as a comprehensive overhaul of the central guidance to make it clear that a multiplicity of funds have been available throughout this process—some of which have closed now, some of which remain open and some of which have been extended. That would be helpful: to provide greater clarity to those local authorities about the types of businesses that are able to be supported and how long this money is expected to last. There has been a general reticence about giving out funds when you might have a further call on income going further forward. However, now that we are towards the end of the pandemic, overhauling that guidance and providing greater certainty would be helpful.

Photo of Jeff Smith Jeff Smith Shadow Minister (Housing, Communities and Local Government)

Q In terms of the quantum of the figure—the £1.5 billion—do you have a view on whether that is sufficient? What kind of businesses ought to be prioritised in the guidance when it comes through?

Kate Nicholls:

The businesses that need to be prioritised are those that have been most significantly affected by the covid crisis: both those frontline businesses in hospitality that have not benefited from the grants and the supply chain businesses to tourism, hospitality and leisure—and also those that are not business-based.

One of the areas that has been missing in a lot of the grant distribution has been food wholesale and food distribution—logistics companies wholly dependent on hospitality—but also our event caterers, business caterers and contract caterers. Those are the businesses that operate from a museum or an office, and not from their own units. They have therefore been totally excluded from grant support going forward.

In terms of the quantum available, we need to look at the allocation per local authority and make sure that that is given on the basis of the number of businesses they have that are disproportionately affected, so that we do not end up with the situation that we have had in the past, where constituencies in local authority areas that have a high concentration of these adversely affected businesses get a relatively small pot of money, because it is allocated per head, or per resident, or it reflects a different form of demographic.

We need to look at the pockets of deepest concern. As we come out of this, we want to avoid a whole-economy approach and be much more targeted and specific with the funds that need to be available in a greater volume to businesses particularly affected.

Photo of Jeff Smith Jeff Smith Shadow Minister (Housing, Communities and Local Government)

Q Finally, have you had any conversations with the Government about that mechanism and guidance? Are they taking soundings from hospitality businesses in particular about how that might work?

Kate Nicholls:

Yes, they are. We are having conversations with the three main Departments that we work with—the Department for Business, Energy and Industrial Strategy, the Department for Digital, Culture, Media and Sport and the Department for Environment, Food and Rural Affairs, on the food supply and wholesale side—to ensure they are pushing to make sure that grant guidance is as comprehensive as possible and identifies the businesses that need to be caught that have been missed in the past but are disproportionally affected by covid. We are also urging that concern and care are taken to include businesses that have been particularly adversely affected as a result of the delay in step 4.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Thank you very much, Ms Nicholls, for your evidence. Do you want to add anything further about businesses that have been excluded from other support that you believe should be within the scope and remit of—and therefore eligible for—this funding? Secondly, are you concerned about delays to the funding? How quickly do you think it needs to be made available?

Kate Nicholls:

The quicker, the better is all I can say. A lot of hospitality businesses and their supply chains are clinging on by their fingertips, particularly given that they have had an extra month of restrictions imposed on them. A quarter of hospitality businesses have not been able to open and legally cannot until 19 July.

The remainder are subject to severe restrictions, meaning a loss of revenue of £3 billion. That impacts up the supply chain because if we are not operating at full capacity, we cannot get our supply chain kickstarted. The delay and cooling effect of that month of extra restrictions is significant, particularly in our town and city centre businesses.

We need to have that money as rapidly as possible, particularly because business rates bills started to kick in again for hospitality from the 1st of this month. Some £100 million of business rates bills started to be felt by the most affected businesses; that flows up through the supply chain as it tightens the credit and liquidity within the market.

The money needs to come as rapidly as possible and local authorities need to be given incentives to make that payment as rapidly as they can through the mechanism, so that delays do not hit. The danger is that if you leave it too late, you fail to get support to the businesses that are teetering on the brink and nearly surviving. We have lost an awful lot within hospitality in our supply chain, and we need to make sure we can keep those that are on the brink. The more swiftly we get money to them, the better.

On those businesses that have not benefited and need to be prioritised in this round of funding, the main ones highlighted are events, contract and office catering, particularly those in town and city centres where the delays will happen. You need a concentration on activities in central London, where businesses will not get back on their feet until we get international travel and office workers back in significant volumes. London hospitality is operating at about 20% to 30% of normal revenue levels; in the rest of the country, it is about 60% to 70%.

There is a severe lag on the central London activity zone and a heavy concentration of affected businesses in those two local authority areas, as well as Southwark on the south bank. You need to have focus on town and city centre areas, as well as the other businesses such as catering, weddings, events, conferences and banqueting, the freelance support and supply chain businesses that sit alongside those, and food wholesale, distribution and logistics.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Thank you; that was very helpful. Within the sector, and from wider discussions you have had with those excluded, are you aware of businesses that have put in MCC appeals? What is the general feeling about this legislation?

Kate Nicholls:

Yes, we had businesses that started to put in MCC appeals midway through the pandemic, when it was obvious that its effect was going to be much longer lasting than was first anticipated at the beginning of last year. A number of holiday parks, camping and caravan parks, golf courses and bigger holiday and hotel resorts put in MCC appeals. A number had been lined up for town and city centre pubs, bars, restaurants and hotels. Then there was the announcement that the MCC appeals would not be allowed under covid—that would not be a legitimate reason for an MCC appeal.

In our sector, MCC appeals are one of the few ways in which we can adjust our rateable value and our rates bills, which are incredibly high: they are the second biggest overhead as our businesses adapt to structural changes in the economy. While we might have thought that covid would be a temporary blip and a temporary impact on the economy, it is quite clear that for many businesses, particularly in towns and city centres, where there are changes to ways of working and to retail office accommodation, we are seeing a structural change that will have a longer-term impact.

People are very concerned, particularly as we move through this period when we have support and a tapering of relief on business rates at hospitality venues that comes to an end in April 2022. The concern is about what happens when we revert to rateable values and rates bills as normal in April 2022, because those bills will be set according to rateable values that were set for rents in 2015, at the height of the property market.

We are going to come back to rates bills at the highest levels we have ever seen them, having had a delay in revaluation. We will have had a long term without a market adjustment and therefore there is a concern that those businesses for which there is clearly a structural change in the marketplace are prohibited from making an appeal now that allows them to get ready for April 2022.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Finally, have you seen a rise in businesses that may have experienced debt and other challenges being dissolved? What does the data in your membership say about what has been driving that? Are there any wider issues around the dissolving of companies that we should be aware of?

Kate Nicholls:

Thankfully, we have seen very few companies in this sector go into liquidation. We have seen some administrations and some companies being revived with inward investment, particularly in the late-night sector. The areas where we have seen the biggest contractions are office-based and London-based.

We have seen a high number of business failures of individual sites and small and medium-sized enterprises. In particular, we have had contraction in the market of 12,000 hospitality businesses from covid from April 2020 to March 2021. That is a contraction of about minus 8% for pubs and bars, plus 10% for restaurants and hotels, but in major conurbations in the heart of our cities, one in five businesses has failed through the covid crisis. Part of that is very high levels of debt, and that will continue to accelerate business failure and business closure as we come out of this. The first date at which our sector can go cash positive is 19 July, but it is estimated it will take two years before the sector can recover to 2019 pre-pandemic revenue levels and profitability.

As we come out of this, we see a heavily in-debt sector. Previously, debt was used to fund growth and further investment. Pre-pandemic, we were opening two sites a day as we expanded our pubs, bars, restaurants and hotel chains; that was funded largely through the debt and earnings of the businesses. Over the course of the pandemic, we have seen that while the rest of the economy has corporate deposits that are twice the level of corporate debt, in hospitality it is exactly the opposite. We have twice the level of debt as corporate deposits, which means that our sector is going to come out with an anchor on its potential growth and recovery, because it will have to pay down and service that debt and that will delay the recovery further.

You are looking at about £2 billion or £2.5 billion of rent debt. We are waiting to see the Government’s proposals in the detail of the Bill that will help to resolve that. There is also £6 billion of Government-backed loans, which many businesses started to repay this month. That is very challenging when they have limited revenue coming in or heavily restricted revenue. Paying down that debt will to take a lot of time to get through and to get over, and we fear very much that the level of business failure that we saw during the covid crisis will be replicated in the two years as we come out of it, as we try to recover.

Photo of Jeff Smith Jeff Smith Shadow Minister (Housing, Communities and Local Government)

Q Can I follow up on a specific question that follows from something you said earlier? I was interested to hear you say that the hospitality trading levels in London are 20% to 30% of what they would normally be, and in the rest of the country it is around 60% to 70%. That is partly down to international travel, and I am guessing that there might also be areas—maybe coastal towns—that might be similarly affected by lack of footfall. I am wondering whether there is an evidence base for those regional or city-based variations that the Government might take into account in guiding the allocations, or is that a little bit too sophisticated to get into?

Kate Nicholls:

It is certainly challenging to be able to get into, and I am not sure it would drill down as closely as local authority by local authority level, but there are certainly indications. You can measure footfall drops by high street data: there is good data from Springboard about footfall in our high streets, towns and city centres, as well as shopping centres. They are measuring it for retailers, but that would also apply to hospitality businesses. It is not just the international tourists: it is the offices, the work from home, and it affects different city centres differently according to the demographic that uses them. It is less to do with our coastal towns—they are benefiting from more domestic tourism and domestic footfall—but you are seeing it in London, Edinburgh, Glasgow, Manchester, and to a lesser extent Leeds, Sheffield and Newcastle. They are seeing a drop, but London is particularly badly affected because 70% of London hospitality is inbound tourism, and we are not going to see any pick-up in inbound tourism any time soon.

I think there are broad regional differences that you can apply: it is a very rough and ready crude assessment that you can place on it, but there is a possibility of looking at footfall data. However, I would urge the Government to look at the areas of the country and the constituencies where you have a disproportionately dense population of hospitality and tourism businesses—many of which will be SMEs—and where you have the supply chain businesses that support them. They tend to be local supply chains and to be geographically co-located, so that would be a good indicator of where that support needs to be directed.

Photo of Luke Hall Luke Hall Minister of State (Housing, Communities and Local Government)

Q We are clearly moved to give 100% rate relief to many businesses with a £16 billion pot. Of course, I understand that some of the businesses you work with and represent will have been disappointed about where the line was drawn, so to speak. I just wonder, notwithstanding the point you made earlier in answer to the question about guidance, whether there is anything you would like local authorities to start thinking about as they start to draw up their own guidance schemes in response to some of the early challenges that have been faced by some of the businesses you will be working with.

Kate Nicholls:

We would urge local authorities to work with us to identify themselves where the areas of greatest need are. One of the things that has frustrated a lot of our businesses is that there is a central message from Government, and it is not necessarily interpreted on the ground as fluidly as Government might have hoped. When you look at some of the local authority areas, we have had businesses that are clearly designed to be captured and covered by the support mechanisms that are available, but local authorities have often taken the view that if it is not directly specified in guidance and it is not a named company or a named type of business, they are precluded from using their discretion and being able to provide support to those businesses. That is the frustration that our businesses have had on the ground going forward.

It would be helpful if local authorities could be a bit more permissive in identifying the businesses that they know are hurting at a local level, rather than applying a prescriptive approach that says, “If your name’s not down, you’re not coming in,” or “Here’s a tick, you are covered.” That would help immeasurably in those businesses that tend to fall between the cracks because they are not clearcut: if you are a coach operator, are you a tourist business or are you not? A local authority should be able to understand its local area and know which ones are and therefore need to be helped, and which ones actually managed okay. Those are the kinds of areas in which we would like local authorities to use their own discretion, not wait to be told specifically by Government that they can help those businesses.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

Q Briefly, with my hospitality Minister hat on, and following on from that question, Kate, you will remember that Minister Huddleston and I wrote to local authorities asking them to use their additional restrictions grant before they access their top-up. Have you seen any evidence of any local authorities responding to that, either by giving more money to businesses on their books or by widening the base to fill some of the cracks that you are highlighting?

Kate Nicholls:

There are a few notable exceptions, but you can measure on the fingers of fewer than two hands the local authorities and businesses we have been able to help that have had a positive response to that request. All too often, the response has been that the grants that we are talking about are closed, there is no more money, and they will get back in touch with the businesses if more money becomes available.

It is incredibly frustrating that you have this disconnect at a central level. We hear what is being pledged, and we hear and understand the work that is being done by Ministers to communicate to those local authorities, but the operators on the ground just get a “No”. Some local authorities have been more creative than others, and some have been more proactive than others, but generally speaking it has been a long, slow process, and it has been very difficult to get money out of the local authorities for the businesses that desperately need it. It has been too slow in being processed. We know, because of the work we are doing we are doing at a central Government level, that it is there and has been made available; it is just not cascading out.

Photo of Simon Baynes Simon Baynes Conservative, Clwyd South

Q Ms Nicholls, I have heard you speak on many occasions about hospitality businesses with great authority. One of the points that occurs to me is that they have the capacity to spring back quicker than some other businesses. That has certainly been the experience, particularly of last summer. They also benefit from the restrictions on travel, in terms of domestic demand. Do you think that to that extent it is quite difficult to judge exactly what the situation would be like at this particular point, because they may spring back better than we fear in, say, the late summer or the autumn?

Kate Nicholls:

There is clearly a value judgment that needs to be made, and local authorities know their own local markets and the businesses within them, but these businesses will be coming out with such high levels of debt that, however quickly they spring back with revenue, it will take them years to repair the damage that covid has done to them. In the past 16 months, the hospitality sector has been closed with no revenue for 10 months and so severely restricted by the social distancing restrictions that it is not profitable for the remaining six. Businesses in our night-time economy, late-night businesses and entertainment businesses, many of which have struggled to access this grant support, have been closed for 16 months with no revenue. That takes an awfully long time to recover from. The sector has lost £280 million a day. Although certain parts of the sector had a strong performance last summer, the best they achieved was 60% of normal revenue, and that is below break-even.

Yes, demand is strong, and we anticipate that people will be coming to our venues this summer, but there are still constraints that will prevent those businesses from rapidly bouncing back into being sustainable and profitable, and they remain wobbly. Debt is one that could topple them over. There are issues to do with driver and labour shortages across the supply chain. They remain in a very fragile state and there is no resilience left in the industry, so we need to work to make sure we have strategies in place and build back resilience into the hospitality sector. We can then support our supply chain. A bit of pump priming and support now will pay dividends in the longer term.

Photo of David Mundell David Mundell Conservative, Dumfriesshire, Clydesdale and Tweeddale

Thank you very much, Ms Nicholls, first, for your evidence and, secondly, for your flexibility with your timings so that you were able to join us early. We appreciated that very much.