Business Rate Relief: A Stopgap Measure for Hospitality Profits?

Business rate relief is a hot topic in hospitality circles this year, and it’s easy to see why. In 2024, many hotels, restaurants, and leisure businesses are finding that rate relief can make a real difference in keeping their operations in the black. With rising costs and lingering effects of the pandemic still affecting the bottom line, any support from the government is a welcome relief.

But is it enough? Many industry voices, like UKHospitality, argue that relying on temporary fixes comes with risks—especially when a “business rates cliff edge” could be right around the corner if more lasting solutions aren’t introduced. In this piece, we’ll look at how these relief measures are affecting the bottom line, the risks of depending too much on them, and why it’s time for stakeholders to think beyond quick fixes to build a more secure future.

The State of Business Rate Relief in 2024 and Its Current Impact on Hospitality Profits

As the hospitality sector grapples with the economic challenges of 2024, the UK government’s business rate relief plays a crucial role in maintaining financial stability. The 2024/25 Retail, Hospitality, and Leisure Scheme offers a 75% discount on business rates for eligible, occupied properties, providing much-needed support in a time of rising costs. However, business rate challenges for UK hospitality persist, as this relief is capped at £110,000 per business, which can limit the benefits for larger operators.

For smaller businesses, such as those with properties valued under £51,000, there is an additional advantage: the government’s freeze on the small business rates multiplier. This decision ensures that their rates do not increase in line with inflation, allowing them to manage their finances with greater certainty. This measure has been particularly beneficial for smaller establishments like independent pubs, restaurants, and shops, enabling them to maintain a steadier cash flow and protect their profit margins despite ongoing economic pressures.

In contrast, businesses with higher-value properties face a more challenging situation. Without the cushion provided by the multiplier freeze, these properties are subject to inflation-linked rate increases. This has been particularly difficult for operators in high-value areas like London, where property values tend to be higher. As their rates adjust upward, the relief may not fully offset the increased burden, leading to tighter profit margins and raising questions about long-term viability in these locations.

Although the relief measures provide crucial support, they are not a comprehensive solution. Many hospitality businesses still face challenges from other rising expenses, such as energy costs and wage inflation. While the relief allows some businesses to allocate more resources towards staffing, marketing, or guest experience improvements, the overall economic landscape remains tough. This makes it essential for businesses to remain vigilant and prepare for potential changes.

Looking ahead, the sector is closely watching the upcoming Autumn Statement for any indications of changes to the relief measures. Hospitality businesses are hopeful for updates that could extend or enhance the support provided, helping them manage their costs in a shifting market. As businesses anticipate these changes, they must also prepare for a future where such support may be less generous, ensuring they have the resilience to maintain profitability even if relief measures are scaled back.

Preparing for the Future: Strategies Beyond Business Rate Relief

With the 2024/25 business rate relief set to expire or potentially be revised by March 2025, the hospitality industry faces an uncertain financial landscape. While the relief has provided a critical buffer against rising costs, the question remains: what happens next if this support is scaled back or withdrawn? The financial implications of rate relief end are profound, as for many, the looming deadline represents a significant shift in how they plan for the future, prompting a re-evaluation of their financial strategies.

The possibility of a reduced or discontinued relief has sparked discussions across the industry about the need for greater financial independence. Diversifying revenue streams has become a recurring theme, with many businesses exploring new ways to generate income. Expanding into catering services, hosting events, or integrating online delivery options are often mentioned as ways to reduce reliance on external support. These shifts can help businesses maintain a stable cash flow, especially as seasonal demand fluctuates.

Operational efficiency is another area where industry insiders see room for growth. Conversations have turned to the role of technology in reducing costs—from automated booking systems to energy-efficient solutions. These innovations, while initially costly, are seen as investments in long-term savings, potentially offsetting any future increases in rates once relief measures change.

Reassessing property use has also come to the forefront. Some argue that this is the perfect time for businesses to look closely at their rateable values, exploring whether appeals or adjustments could lead to more favourable assessments. Others see potential in underutilised spaces, suggesting that partnerships or subletting arrangements could open up new revenue streams.

For those who have historically struggled to access rate relief, the conversation takes on a different tone. Many have faced the same pressures as their peers—rising costs, fluctuating demand—but without the benefit of government support. For these operators, the focus has been on building strong customer relationships and creating loyal followings. There’s an underlying belief that while relief can offer a temporary lifeline, a loyal customer base provides a more sustainable form of security in uncertain times.

With the Autumn Statement on the horizon, the hospitality sector is on edge, eager to see if the government will extend its support or if a new, more challenging reality awaits. The outcome could reshape how businesses plan for the year ahead, making it critical to stay prepared for any scenario. While no one can predict the outcome, the discussions within the industry point to one common theme: the importance of readiness. Whether relief is extended or not, businesses that have taken steps to adapt are likely to be in a better position to navigate whatever changes lie ahead.

Final Thoughts

As the 2024/25 business rate relief nears its potential end, the hospitality sector faces a critical juncture. While the relief has provided temporary stability, adapting to a future without it will require strategic shifts and resilience. Whether the government extends support or not, businesses that focus on long-term efficiencies will have the best chance of maintaining profitability in the hospitality sector in the UK in a changing market.

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Originally published Oct 22, 2024 10:10:54, updated Dec 04 2024

Topics: Finance and Accounting Transformation, Hospitality Accounting