Hospitality industry 'will not fully recover' from covid-19

MPs have been told it is “pretty certain” that the hospitality sector will not recover fully from the Covid-19 crisis.

Professor Alasadair Smith, a member of the Scottish Fiscal Commission, said while the sector would recover, the extent to which that would happen was uncertain.

He spoke as MPs on Westminster’s Scottish Affairs Committee were told that the Government should guard against keeping “zombie firms going” with its economic support packages.

David Phillips, an associate director with the Institute for Fiscal Studies, said there had been a “lack of creative destruction” after the 2008 financial crisis – saying while many workers had stayed in their jobs, this meant they had not moved to “more productive parts of the economy”.

And he said it would not be a “failure of policy” if Covid-19 resulted in some firms closing down and jobs being lost.

With the UK Government looking to ease support schemes such as its furlough initiative, he said ministers would have to be “very careful to unwind that in such a way that you don’t tip viable firms over, but you don’t keep zombie firms going”.

Mr Phillips told the committee: “The point I was making about creative destruction, there will come a stage where maybe some the changes in behaviours and economic activity that have taken place – the shift to home working, maybe people eating out a little bit less but spending more on their homes and their gardens and others things.

“If those sort of changes are there but we’re still sort of propping up businesses in the hospitality sector to the full extent, we would be slowing the reallocation of capital and workers to these opportunities.”

He added: “I don’t think just allow the destruction to happen, because a lot of that will be viable businesses, and that would slow down recovery.

“But it is not a failure of policy if there are some job losses and some businesses going under because they could be indicating that the economy is responding to the changed environment.”

His comments came after Prof Smith told the committee the hospitality sector had been “particularly exposed” to Covid-19, warning that “that exposure will translate into employment risks without any doubt”.

While he stressed there was a “high degree of uncertainty” about what the future would look like for the sector, he told the MPs that the hospitality industry had been “one of the most affected” by lockdown.

“It is quite hard to judge how rapidly that sector will recover,” he told the committee.

“How much it recovers will be uncertain. We can be pretty certain it is not going to recover fully, it is going to have longer term problems to deal with.”