How are business rates are impacting the sector?

Imagine being able to increase your prices by as much as 100%, safe in the knowledge that if your customers refused to stump up they would be sent to jail. That sounds ridiculous, doesn’t it? Yet it is exactly what local authorities across the country are doing to large numbers of hotels thanks to their highly creative method of re-calculating business rates every few years. Within Pride of Britain almost all of our member hotels are affected and most are appealing against the increases using professional support.

The subject has provoked anger in parliament and some relief may be in the offing at the time of writing but the system remains astonishingly unfit for purpose since it literally punishes success. There’s an old French saying which, roughly translated, says the collection of tax works on the principle of “so plucking the goose as to obtain the largest possible amount of feathers with the smallest amount of hissing”. In this case there is a very high risk of killing the goose completely.

Rates of another kind loom large in the news at the moment, namely the hourly pay to which all workers are entitled as enshrined in the National Living Wage. In its wisdom the government has published a list of “offenders” who have underpaid their staff, with potentially damaging consequences for the reputations of these employers. Naturally I would not try to defend those who actually do expect their staff to work for less than the legal minimum but plenty of innocent business owners have been caught out by the complex rules. If you obtain something for an employee, such as a set of expensive chef’s knives, and deduct the cost from their salary you may inadvertently tip them under the minimum wage for that period, even though your action has saved them money. Instead, we now realise, salaries must be paid in full and an invoice raised so the person can pay you back out of their (taxed) income afterwards. Another pitfall exists where deposits for accommodation have been deducted from salaries.

Meanwhile the rates hotels can charge their customers remain under downward pressure, driven in part by the transparency of the internet.

Despite these challenges most of the hoteliers I mix with are doing well. That’s because they have mastered the art of making their customers happy and because we live in an era that is currently spared the worst rate menace of all, crippling bank interest. Younger readers may have no memory of the harm high bank interest rates can do to both customer confidence and the bottom line. In fact you have to look back to the early 1990s for rates in double digits.

When I worked as a waiter in a small hotel and country club towards the end of the 1970s our owner was paying 18% on his considerable borrowings yet somehow managed to keep smiling, perhaps thanks to a wealthy clientele who, despite watching their own fortunes plummet, could still afford a fillet steak and a nice bottle of wine any day of the week.

The resilience of the hospitality industry is remarkable when you think of past recessions and the endless bombardment in the form of extra taxes and regulation it faces. I fear this resilience works against us in some ways. Sectors that have been in conspicuous trouble at various times, such as the steel industry, car manufacturing and farming have tended to receive special help to keep them going. On the face of it, our vast and fragmented trade looks to be in rude health with luxurious new properties opening all the time. It takes more diligent research to notice the effect a well-meaning state can have on all the independent businesses who are expected, one way or another, to pay up and stop hissing.

Peter Hancock, chief executive of Pride of Britain Hotels. This feature originally appeared in the March 2017 issue of Hotel Owner.