by The Tourism Alliance
Here are some important take-aways from the Budget delivered by the Chancellor, Rachel Reeves MP.
National Insurance
Two key changes. Employer NICs will increase by 1.2 percentage points to 15% and the threshold at which NICs start to be paid will be reduced from £9,100 per year currently to £5,000 per year. This will apply from the start of the next financial year, 6 April 2025.
The very smallest businesses will benefit from an increase in Employment Allowance from £5,000 to £10,500 per year. The £100,000 threshold will also be removed, meaning more businesses will be able to take advantage of this allowance.
National Minimum and Living Wage
The NLW will increase by 6.7% to £12.21 per hour from April next year with the NMW for 18-20 year olds increasing 16.3% to £10 per hour with the aim of closing the gap between the two and having a single adult minimum wage to be achieved ‘over time’.
Taken together, the NIC and minimum wage changes will have significant impacts on many businesses in the sector significantly increasing labour costs. UKHospitality are estimating that NIC changes will be a £1bn additional jobs tax. Of course these additional costs will overwhelmingly have to be passed onto tourists through higher rates and prices, sadly doing little to address our cost competitiveness challenge.
Business rates
The Chancellor announced a permanent lower business rates multiplier for retail, hospitality and leisure properties of 40% down from the current temporary 75% which avoids a total cliff edge, but will still be a significant reduction on current relief levels. We are of course pleased to see permanent relief so that businesses don’t have to face the prospect of the ending of relief every year and can plan for the long-term.
Alongside the Budget the Treasury has published a discussion paper on Business Rates reform with three objectives in mind: protecting the high street; encouraging investment; and creating a fairer system. The Treasury will begin engagement on proposals straight away concluding in March next year. We are strongly supportive of reform of business rates in order to rebalance the system so that businesses in our sector no longer have to bear an unfair share of the burden compared to businesses in general.
Air Passenger Duty
This is a key area for the visitor economy as so many of our international visitors and our outbound sector make use of air travel. APD will increase by £2 for short-haul flights in economy, £12 for long-haul economy and further increases for premium classes. Obviously, we would prefer to see APD rates frozen given that they are already some of the highest in the world and contribute to our lack of price competitiveness as a global destination.
Tourist charges
No changes to Visa fees, ETA costs etc were announced.
FHL Abolition
The Treasury intend to continue with their plan to abolish the Furnished Holiday Lets regime and the Exchequer Secretary, James Murray MP confirmed this in a letter earlier this week. We had joined sector calls for a year’s pause to assist people and businesses adjust to the new tax regime and to see the Economic Impact Assessment of this reform. The Treasury do not believe there will be any macroeconomic impact of this policy change.
Alcohol Duty
Alcohol Duty in draught products below 8.5% ABV will be cut by 1.7% which equates to 1p in the pint. All other Alcohol Duty will increase in line with RPI from 1 February next year – that’s a 3.65% increase.
VAT-free shopping
Entirely absent from the Chancellor’s speech and Red Book, as expected. In conversations with ministers and officials it is clear there is still work to do in making the case for the establishment of a VAT-free regime for our visitors which we will continue to do in collaboration with other sectors.
DCMS funding
The DCMS settlement will grow in real terms by 2.6% between this year and next. This extra funding will be used, in part, for increase the Grant-in-Aid for National Museums and Galleries to ‘help support their long-term sustainability.’
You can access the Treasury’s Red Book’ and associated Budget documents such as policy costings via https://www.gov.uk/government/publications/autumn-budget-2024
The Office of Budget Responsibility’s Economic and fiscal outlook document is available at https://obr.uk/efo/economic-and-fiscal-outlook-october-2024/.