SCC: VAT cut needed for Scottish hospitality and tourism sector

The Scottish Chambers of Commerce (SCC) has called for VAT to be cut in the hospitality and tourism industry to help businesses who have been hit the hardest by the coronavirus pandemic.

SCC: VAT cut needed for Scottish hospitality and tourism sector

The SCC Quarterly Economic Indicator for the second quarter of the year has revealed that business confidence has fallen to historic lows in many of the sectors, with construction, retail & tourism most affected by the crisis.

The survey, conducted in partnership with the University of Strathclyde’s Fraser of Allander Institute, found that most firms in Scotland expect to require less staff highlighting the long-term employment problems yet to be faced.

The SCC also revealed that cashflow has fallen to record lows for many sectors. In every sector, except manufacturing, the proportion of firms applying for credit is at the highest level since the question was introduced to the survey in 2014.

As a result, nay businesses will have to rely solely on cash reserves and government support schemes to meet fixed costs, with overhead costs rising across all sectors.

Tim Allan, President of the Scottish Chambers of Commerce, said: “In many instances, these results are among the worst over the 30-year history of the survey. However, the circumstances of which they have arisen means that they should come as little surprise. COVID-19 has drastically halted or limited activity across all sectors of the Scottish and global economy.

“Our message to government is this: work productively with businesses in our shared aim of protecting jobs and local economies that may be lost forever if action is not taken now. Businesses are eager to do whatever they can to adapt to what will be a testing business environment; which will include changing workplace practises, dramatically evolving business models and re-skilling the workforce which will be critical across all sectors.

“It is critical that governments in Holyrood & Westminster continue to provide business support for companies during and beyond the easing of lockdown restrictions. A sudden end to these vital financial support measures would not be welcome by anyone and a tsunami of jobs would disappear overnight.

“Looking towards the future, governments must accelerate investment plans to fuel economic demand and activity as well as providing support for sectors to adapt to the new economy. This must go hand in hand with job guarantee and training schemes that ensure that we do not see a lost generation of talent.”

On the manufacturing sector, Tim Allan said: “Some manufacturing businesses and outlets will likely have continued to operate in the lockdown period by contributing significantly to the public health response or supporting an essential service. Around half of firms in the survey have reported falls in orders and only around a quarter expect these trends to rise in Q3 with levels of increases and profits also at very low levels. The sector is being impacted by high-cost pressures from raw material prices and other overhead costs, it will need support for these as it attempts to drive future demand.’’

On retail and wholesale, he added: “The retail sector has reported some of the lowest ever net balances recorded for the survey. Profit levels have plummeted and investment levels have collapsed with fewer than 10% of firms expected to increase investment and 70% expect levels to remain unchanged or fall in the next quarter. The major challenge for many of Scotland’s high streets and town centres is determining if the costs occurred to re-open safely will be supported by increased demand to make these businesses sustainable.

“The sector needs measures that will boost confidence and a temporary VAT cut by the Treasury will stimulate consumer demand.”

On tourism, Tim Allan said: “The tourism and wider hospitality sector has suffered heavily, placing the sector into hibernation throughout the lockdown period. These issues as well as the increased costs firms will face to re-open safely, and reduced customers in any scenario, places the sector firmly in the danger zone.

“The UK Government must immediately reduce the rate of VAT on hospitality and tourism services including accommodation, food, beverages and visits to attractions to boost activity and consumer confidence.

“The current physical distancing guideline of 2 metres is having major implications on businesses to restart viably therefore an urgent decision from Scottish Government to reduce physical distancing from 2 metres to 1 metre is essential to support recovery.’’

On financial and business services, he continued: “The sector is among the least depressed of the sectors, perhaps due to being the most equipped to operate remotely. However, at least half of respondents have reported falls in confidence, sales, investment, cashflow and profits. Like in other sectors, firms are reporting a sudden increase in overhead cost pressures and are fearful of rises in taxation.’’

Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, commented: “This latest survey from the Scottish Chambers of Commerce presents a sombre picture of the scale of the challenge now facing the Scottish economy.

“Across the board, confidence has plummeted, with a sharp fall in sales, turnover and investment across the business base. Chief amongst these was the unprecedented response from the tourism community, where a staggering – albeit not unsurprisingly – 95% of firms reported a fall in business confidence.

“What is particularly worrying is the employment outlook. The survey shows a clear warning of what is to come, with a sharp rise in unemployment now inevitable as businesses adjust to a new normal. The immediate priority for many businesses is survival.’’

  • Read all of our articles relating to COVID-19 here.
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