London could face a chronic shortage of hotels in the run up to the 2012 Olympic Games, warned the British Hospitality Association (BHA).Despite receiving record investment this year, the BHA’s annual Trends and Statistics report reveals that the scrapping of the Hotel Buildings Allowance (HBA) could drive up building costs, forcing major companies to abandon leading projects in the capital and elsewhere.
The allowance was an annual 4% tax concession for hotel owners spanning the first 25 years of every newly built hotel’s lifetime. The tax break, to encourage investment, has been in place for 30 years. However the Treasury now thinks the allowance has served its purpose.
A spokeswoman from budget hotel group Travelodge told B&E online that the eradication of the HBA is yet another demonstration of government not understanding British tourism.
She said: “The Department of Culture, Media and Sport is calling on our industry to open thousands of new hotel rooms in order to handle the influx of visitors to Britain, particularly London, in the run up to the Olympics – yet the Treasury has forced costs of building up.”
BHA deputy chief executive Martin Couchman told B&E online that the proposed changes would hit operators planning new work and those banking on receiving tax relief on past investments.
He said: “Buildings that are already in the pipeline where the return is more marginal, and there maybe some connected with the Olympics that might be thought of as being more marginal, may have to be pulled or delayed. If there is no longer any incentive to build hotels, companies might decide to build blocks of flats instead and some of the international groups may decide to build hotels abroad. It is difficult to know exactly what will happen.”
While the tax allowance is still at consultation, Couchman is adamant that the HBA won’t be there for new builds.
He added: “It is now more of a challenge to get capital because of the Northern Rock crisis. Six months ago the bank was quite happy to lend companies money for a project, partly on the basis of the HBA. What you will find now is that companies will be put off the idea or might feel it is impossible to go ahead.”