Scottish hospitality ‘on its knees’ without tax cuts after 'catastrophic' Budget

More than 400 leaders in the hospitality sector have used an open letter to call on the Scottish Government to slash business rates when the Budget is outlined on December 4.

Finance Secretary Shona Robison was told in a letter from the Scottish Hospitality Group (SHG) the industry was being unfairly punished by the tax system.

The letter, signed by 444 businesses and individuals, urges Ms Robison to reduce the business rates poundage to 35p for all licensed hospitality premises without a cap. Signatories to the letter include BrewDog, Culloden House, Blue Lagoon and the McGinty Group.

But the urgent plea comes as John Swinney outlined significant doubts over just how much money the Scottish Government would have to allocate in its Budget.

He said the Government would not have certainty on reimbursement for the National Insurance contributions (NIC) rise when it publishes its Budget. Chancellor Rachel Reeves announced an increase in the threshold paid by employers in her first UK Budget last month, estimated to raise more than £25 billion.

The Scottish Government has stressed that public services should be shielded from the increase, which it says will cost the public purse £500 million.

Tax hikes announced in the UK Budget will cost Scotland’s councils around £350m, it has been warned, adding to “unprecedented” financial pressures.

Cosla, the local authority body, estimated the direct cost of the increase in employer National Insurance contributions would be £265m, with an extra £85m associated with adult social care.

“This additional cost is occurring at a time of unprecedented financial pressures for local government,” it said in a briefing sent to MSPs.

The UK government said funding for councils was devolved to Scottish ministers. But Mr Swinney called on the Treasury to provide more clarity on how public services would be compensated for the hike.

Speaking to journalists during a visit to Wardie Primary School in Edinburgh yesterday, Mr Swinney said discussions with the Treasury on reimbursement for public services were ongoing.

The First Minister said: “We still do not have certainty, and I don’t expect us to have certainty on this question when we set a Budget on December 4.

“Now this is not some trivial, inconsequential factor. This is half a billion pounds. It’s a huge amount of money about which we have financial uncertainty as we go into the Budget.”

Mr Swinney said he was particularly concerned about the impact of NIC rises on the care sector. Cosla said other affected services would include early learning and childcare, children’s social care and registered social landlords.

Health Secretary Neil Gray has said the Chancellor’s National Insurance hike could cost the NHS as much as £200m. Speaking during a debate in Holyrood yesterday, Mr Gray accused Ms Reeves of “balancing the Budget on the backs of charities”.

He said: “So it all boils down to, once again, Scottish Labour asking Scottish public services to pay for a bad UK decision. What a shameful position they have got themselves into where they will sell out our Scottish public services to fill the UK Treasury coffers.

Scottish Labour deputy leader Dame Jackie Baillie accused the Scottish Government of blaming others for the state of the health service and the nation’s finances.

The letter from the SHG has meanwhile called on the Scottish Government to make good on its commitment to find a more “equitable” long-term replacement for the existing non-domestic rates system ahead of revaluations in 2026.

The hospitality body said the non-domestic rates system “unfairly penalises” the hospitality sector, which pays business rates based on turnover while other sectors, such as retail, pay business rates based on their square footage.

They pointed to a poll earlier this year by Survation, which found 60 per cent of people in Scotland backed reforming the existing non-domestic rates system.

Ms Robison was urged to offer more support to the hospitality sector, which the SHG says is still reeling from Covid while battling high energy prices.

Stephen Montgomery, director of the SHG, said: “Restaurants, hotels, and pubs are the lifeblood of our communities, but the current business rates system unfairly penalises Scotland’s hospitality sector and is not fit for purpose.

“That is why we need to see the Scottish Government deliver urgent rates relief in the Budget on December 4 by reducing the poundage to 35p without a cap.

“As our open letter shows, such a change is overwhelmingly backed by the hospitality sector and has the support of some of Scotland’s largest employers, as well as the wider Scottish public.”

Mr Montgomery added: “Without this action, the future of many more hospitality businesses – as well as their suppliers – will be put at risk, as will tens of thousands of jobs, and significant investment in the Scottish economy.”

The letter follows similar calls from Scottish Labour leader Anas Sarwar, who urged Scottish ministers to follow the UK government and extend rates relief to businesses north of the Border.

Ms Reeves extended the 40 per cent rates relief for retail, hospitality and leisure firms in last month’s UK Budget. The Fraser of Allander Institute has estimated it would cost £220m to replicate the policy in Scotland.

Highlands MP Angus Macdonald has described the UK Budget as “absolutely catastrophic” to Scotland’s hospitality and tourism industries.

Mr Macdonald, the Lib Dem MP for Inverness, Skye and West Ross-shire, said the tax increases the industry now faced would bring tourism “down on its knees” as it would see some costs increase by more than five times the rate of inflation.

Speaking at Westminster’s Scottish Affairs Committee, Mr Macdonald said: “The hospitality industry is completely on its knees.

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“The hospitality industry employs a lot of young people, often in their first job straight out of school, and businesses are seeing a 12.7 per cent increase when you take in the increases in pay for young people.

“This means increasing the payroll by five times the rate of inflation. It is absolutely catastrophic and is bringing tourism on the west coast down on its knees - I wonder if that was considered before [the budget] went through.”

Mr Macdonald said this would lead to more people leaving the Highlands for the cities, pointing out that the school roll in Gairloch Primary School has halved in recent years.

“Things like the National Insurance increases are devastating - it is really, really painful,” he said.

The comments were made during a question and answer session with Scottish Secretary Ian Murray, who said he also wanted to see the Scottish Government replicating the 40 per cent business rates relief for hospitality in next month’s Holyrood budget.

However, he defended the Chancellor’s Budget statement and said “everyone has to put into the pot”.

Mr Murray said: “We are in a situation where 70 per cent of the people in connection with the welfare system are in work, so we have a problem with making sure people are paid properly for a good day’s work. That is where we should be as a government.

“When it comes to National Insurance employer contributions - someone had to pay for the budget. Everyone wants the benefits, but no one wants the pain.”

Ms Robison said: “The 2024/25 Scottish Budget delivers a competitive non-domestic rates regime including the lowest poundage in the UK for the sixth year in a row, and a package of reliefs worth £727m as at June 1, 2024.

“Our small business bonus scheme remains the most generous of its kind in the UK.”