Written evidence submitted by British Marine

Response to the Department for Digital, Culture, Media and Sport’s Inquiry into the Impact of COVID-19 on DCMS Sectors

June 2020

1           Introduction

1.1          British Marine is the trade association for the UK’s leisure, superyacht, and small commercial marine industry. We have 1,500 member companies, most of which are small and medium sized businesses. These companies provide the boats, marine equipment, facilities and services that enables four million people to enjoy boating and water sports on the coastal and inland waterways of the UK every year.

1.2          We support the leisure marine industry through a range of services and operate the Southampton International Boat Show, which provides a world leading showcase for UK marine businesses.

2           Summary

2.1          In the UK there are approximately 5,800 marine businesses which are facing a time of crisis as a result of the COVID-19 pandemic.

2.2          While the measures announced by the UK Government and Devolved Administrations have been gratefully received by British Marine and its members, we know that many of these businesses remain ineligible for the existing package of support.

2.3          The unique nature of boating businesses combined with the seasonal nature of the industry means that the measures already announced do not address some of the largest costs facing most marine businesses.

2.4          British Marine is clear that the leisure marine industry must be one of the first sectors to resume business activities once it is safe to do so, and with the appropriate social distancing measures in place.

2.5          We recommend a fiscal package for businesses which do not pay businesses rates. We also recommend a £20million fiscal package for waterways businesses to help with the cost of moorings and licenses, and a reduction in the level of VAT.

3           Background

3.1          The leisure marine industry is proud to be world-leaders in design and manufacturing, a hub for innovation and a source of hundreds of apprenticeships every year.

3.2          Our latest KPI statistics show that the industry’s turnover has surpassed £3.9bn and it employs approximately 38,000 employees.

3.3          Combined with associated expenditures from boating-related tourism, turnover in the boating industry totals more than £9bn. Businesses in the marine industry deliver over £6bn in direct and indirect GVA to the UK economy each year and support approximately 211,000 jobs through direct and indirect effects.

3.4          The unprecedented impact of COVID-19 presents a unique challenge to these marine businesses.

3.5          This is because they are largely reliant on a short season for almost all of their income. Most are either in the hire or charter boat sectors which make up the tourism market.

4           The immediate impact of COVID-19 on the sector

4.1          British Marine conducted a survey of its members to understand the impact of COVID-19 on the leisure marine industry. We received a total of 377 responses, the majority of which were from the boating tourism sector.

4.2          Most, if not all, of these boat hire companies have reported cancellations, with very few new inquiries for the remainder of the holiday season.

4.3          Of the responses, 51% of businesses reported problems with the supply chain. These issues include difficulty obtaining materials, the parts required for maintenance and the delivery of stock.

4.4          In addition, approximately 66% of respondents with employees said they were expecting to reduce their workforce as a result of COVID-19. Over half (55%) also said they expected to encounter problems paying tax. We believe these findings clearly demonstrate the further operational challenges businesses face as they resume their activities with a smaller taskforce and, going forward, a potentially significant loss of skills across the industry.  Should this loss of skills be realised, the UK Government should consider how best to support the sector to attract, retain and upskill new recruits.

4.5          The results from the British Marine survey also tell us that 32% of businesses which import into the UK are facing difficulties due to restrictions or other impacts brought about as a result of the pandemic. Late deliveries and border closures are among these issues. British Marine and its industry partners believe that these issues will continue to present a significant challenge to businesses once the restrictions on movement are eased. 

4.6          Approximately 90% of our passenger boat members have told us that the 2-metre rule would make it economically unviable to run a service based on this requirement. When asked about the impact of a 1-metre rule, only 60% said this would be economically unviable.

4.7          Other key operational challenges, aside from social distancing and those mentioned above include working out future staff travel arrangements and cleaning arrangements within the workplace.

4.8          Given these challenges it is imperative that the UK Government steps up its support for businesses and recognises that measures will be needed for some time - even after further restrictions are lifted.

4.9          In the following section we outline details of the support our members require. This includes additional support for businesses which do not pay business rates. 

4.10      Some of our other recommendations include a fiscal package to support the boating tourism sector with the cost of annual mooring and license fees, an extension to the Coronavirus Job Retention Scheme for seasonal businesses until April 2021, and a reduction in the level of VAT.

5           The effectiveness of the support provided by DCMS, other Government departments and arms-length bodies in addressing the sector’s needs

5.1          Overall, the support measures announced by the UK Government have been gratefully received by our members – however some of the changes recently announced will present a further challenge for small businesses.

Support for smaller businesses

5.2          It is clear from our research and conversations that the majority of our members have sought support in the form of a grant – typically applying to their local authority for the Retail, Leisure and Hospitality Grant Fund.

5.3          Naturally, these grants have been welcomed by those in receipt of them; however, British Marine is aware that many of its members have encountered problems confirming their eligibility. In addition, many of the businesses we represent are not eligible because they do not operate from commercial premises or pay business rates. Our figures suggest 260 businesses do not operate from such premises.

5.4          The subsequent introduction of the Discretionary Fund has therefore been gratefully received as it enables funds to be distributed to businesses with large property-related costs but does not stipulate that recipients must be ratepayers. The effectiveness however must be improved through further clarification of the advice produced by the Government on the types of businesses, which, in its view, should be eligible for this relief. British Marine is aware that even with this additional fund its members have encountered problems confirming eligibility. The decision to provide additional guidance or a communication encouraging local authorities to use their full discretion, will help to improve the approach currently being taken.

5.5          It is encouraging to see that more measures, including the ‘Bounce Back’ loans have been announced for smaller businesses however, the nature of the leisure marine industry means that many businesses operate on narrow profit margins and are not in a position to take out further loans or debt.

5.6          Our research has also identified the importance our members attach to the Coronavirus Job Retention Scheme. This scheme has been very effective and has enabled many employers to avoid making redundancies. This scheme was one of the most frequently cited measures our members indicated they would apply for or had applied for. In total 70% of respondents to a British Marine survey said they expected to make use of the furlough scheme or the Self-Employed Income Support Scheme.

5.7          However, the changes announced to the furlough scheme, which will see employers required to contribute, will present a further challenge to many seasonal businesses. The scenario is particularly bleak for our 61 passenger boat members. Their operations ceased instantly, with many not expecting to return this year. These businesses have been clear - without further financial support and with no additional income over the coming winter, they expect to make further job losses and, in some cases, may not see the start of next season.

5.8          Having recently surveyed our passenger boat members, there is overwhelming agreement that, even if possible, operating under the existing social distancing requirements would not be economically viable, with some respondents suggesting their capacity would have to reduce to a fifth of normal carrying capacity.

5.9          As mentioned previously in this response, the decision to reduce the current 2-metre social distancing requirement to 1 metre would have a profoundly positive effect on our passenger boat members. From our research, we know that 90% of passenger boat operators consider it uneconomical to operate with a 2-metre requirement in place, whereas only 60% said a 1 metre requirement would be economically unviable.

5.10      Our real concern is that under existing UK Government guidance, passenger boat operations are unlikely to resume for the foreseeable future and possibly not even until the start of the following season. For many, this means that the staff employed, whose contracts run up to October/November are, in effect now already redundant.  Given the changes proposed over the coming months, these businesses, who have very little cash flow, will not be in a position to contribute to the furlough scheme. Therefore, to prevent redundancies and improve the effectiveness of the measure we would recommend the UK Government revisits its decision to require all businesses to contribute towards the scheme and gives special consideration to seasonal businesses. We are therefore calling on the UK Government to extend the furlough scheme for seasonal businesses. Specifically, we would recommend that the scheme is extended until April 2021.

Support for larger businesses

5.11      We recognise the scale of support provided to larger businesses and the so called ‘forgotten-middle’ through the Coronavirus Business Interruption Loan, Coronavirus Large Business Interruption Scheme and the Covid Corporate Finance Facility.

5.12      Whilst support for larger businesses is welcome, only 20% of businesses in our survey said they would apply for a Coronavirus Business Interruption Loan – a clear indication, as noted throughout this response, that many businesses in the marine sector have narrow profit margins and are not in a position to take out loans.

5.13      British Marine is also aware of problems with the eligibility criteria for the different loan schemes. One British Marine member was refused a loan, despite the company having completed a successful restructure. Instead of seeing the company as a start-up, the bank’s decision was based on previous trading history under the old credentials. Without this loan, we understand the company may not survive, thereby putting further jobs in the supply chain at risk. The company is a significant employer in the region and the impact will hit the manufacturing base in the local community.

5.14      We would therefore recommend that the eligibility criteria is revisited to ensure that banks consider companies which have completed a recent restructure. This could be easily achieved by treating similar firms as start-ups.

6           Long-term impacts of COVID-19 on the sector and the support needed to deal with these impacts

6.1          British Marine is also clear that the impact of any prolonged closure of business operations could be catastrophic for the future of the industry.

6.2          The damage is likely to be particularly acute for boating tourism providers who are facing disaster without seasonal earnings to balance winter debt. This will be exacerbated by these businesses not having sufficient funds from the holiday season to properly maintain their boats and through changes to the support currently available. The effect is likely to be particularly pronounced for passenger boat operators following the changes made to the Coronavirus Job Retention Scheme and the likely onset of redundancies. We provided more detail and outline the implications for passenger boat operators in the previous section.

6.3          Having modelled the likely impacts of COVID-19 on the sector, the minimum impact scenario estimates the total number of jobs which would be lost without sufficient financial assistance. Our models suggest this figure would be more than 13,000. The model also estimates that the total lost GVA in the wider tourism sector will surpass £380,000,000 without further interventions.

6.4          It is clear from our research that jobs in the passenger boat sector are most at risk (58%), closely followed by those in the boat hire and water sports sector (32%). Further information on industry wide implications can be found in the Appendix.

6.5          British Marine welcomes the recent announcement from the Prime Minister and the advice from DEFRA has been gratefully received by our members who can now, in line with guidance on social distancing, practise all forms of water sports on open waterways and use privately-owned motorised craft.

6.6          We continue to work closely with our members and officials at DEFRA and DCMS to demonstrate how commercially operated boating can resume before the beginning of July – the date at which further restrictions are set to be lifted across the leisure and hospitality industries in England. 

6.7          British Marine has produced a set of documents designed to help its members resume business activity whilst adhering to the UK’s Government’s guidelines on safe working practices. 

6.8          The ‘Back to Business’ documents demonstrating this readiness set out how activity can resume and outline how it is possible for families to go on a hire boat holiday as a single household.

6.9          We know how vitally important it is for these businesses to become more self-sufficient and generate some of their own income during the remaining holiday season.

6.10      Given the nature of the industry, it is imperative that our members, particularly those in the day-hire and holiday-hire sectors, can resume activities whilst there is the opportunity to do so.

6.11      Now DEFRA has confirmed that self-drive day boat hire and charter can go ahead, it is vitally important that other sectors can resume. This includes holiday hire and charter companies which offer overnight stays.

6.12      Under the headings below we outline further support that is required to help the leisure marine industry deal with the impacts of COVID-19.

Recommendation: Provide a fiscal package for leisure marine businesses who do not pay business rates

6.13      Many of the small boat hire and passenger boat business operating in the UK do so from a commercial mooring and not from a business premises.  These businesses are therefore ineligible for one of the Retail, Hospitality and Leisure grants.

6.14      British Marine statistics show there are nearly 200 hire boat businesses and over 140 passenger boat operators in the UK.  Of these, it is estimated that at least 230 do not operate from a business premises and are therefore outside the scope for support.

6.15      British Marine would therefore recommend an extension of the fiscal support to business which do not pay business rates. Given the introduction of the Discretionary Fund, we believe this could easily be achieved through clarification of the guidance. Such clarification would confirm that marine businesses are an intended recipient and eligible to apply for this fund.

6.16      Now more businesses are resuming activity our proposal, in light of the changes to the furlough scheme, would be to extend the scheme for seasonal businesses and to exempt them from the requirement to contribute towards staff salaries, National Insurance and pension contributions. This would help employers, particularly in the passenger and boat hire sectors, to avoid redundancies.

Recommendation: Provide fiscal support for businesses paying commercial boat licenses

6.17      The 200 hire and 140 passenger boats in the UK all have to pay some form of annual boat licence, registration or toll depending on the navigation they operate on. These annual fees are paid to navigation authorities.

6.18      British Marine has been working closely with the Canal and River Trust, Inland Waterways Association and the Broads Authority on this issue. Together, we are calling on the UK Government to provide a fiscal package to either defer or reimburse the cost of commercial boat licenses for the 2020 boating season.

6.19      We estimate this would cost approximately £20 million and have already written to the Department for Environment, Food and Rural Affairs with further information on this recommendation. Even as commercial activity starts to resume, our members face a much shorter season and require additional support to help them meet these costs and survive the winter season where many businesses will remain closed.

Recommendation: Reduction in level of VAT payable

6.20      We believe the UK Government should consider temporarily reducing the rate of VAT as they did in 2008 following the global financial crash, to stimulate demand across the marine sector and other industries.

6.21      We note that Germany has reduced VAT to 16% and our suggestion would be to reduce VAT to 15% for 18 months, then over the next two years increase it by 2.5% each year until it returns to 20%. This would help to stimulate demand for new boats and help boat brokerage firms which have been badly hit by COVD-19. Measures should, in our view, also be taken to stimulate the demand for used boats. This could be achieved by reducing the VAT Margin schemes - either reducing the amount payable or a temporary suspension of the scheme itself.

6.22      These measures would help boat dealers to sell their used stock, enabling them to buy more and in doing so, stimulate the demand for new boats.

7           Lessons that can be learnt from DCMS and arms-length bodies in terms of how they have dealt with COVID-19

7.1          At the beginning of the pandemic, British Marine sought DCMS advice on behalf of our members regarding the closing of marina facilities.  DCMS advice was to treat marina operations in the same way as caravan parks in an effort to discourage non-essential travel.  There are, however, notable differences between the way in which caravan parks and marinas and hire boat businesses operate, provide a service and experience for their customers.

7.2          We would therefore recommend that future guidance is devised which specifically takes into account the way in which the leisure marine industry operates. This would help to alleviate some of the confusion regarding the interpretation of the advice issued by the Ministry of Housing Communities and Local Government.  There should be also better communication and engagement across Government Departments and their agencies to support our diverse industry.  In particular between DEFRA, BEIS, DfT, DCMS and the MCA.

8           How the sector could evolve after COVID-19 and how DCMS can support innovation to deal with future challenges

8.1          British Marine believes that DCMS has a crucial role to play in the sector’s recovery. Our country’s waterways should play their part, with more people encouraged to take domestic holidays on the waterways and canals.

8.2          Businesses in the leisure marine sector would benefit from any investment the UK Government could provide in our waterways and canal network, as it has already done for the cycle network. We believe this measure would help to drive domestic tourism.

8.3          DCMS could also support the tourism industry more widely through a campaign which encourages people to take domestic breaks and support small businesses. We know first-hand that there are many health benefits associated with boating and being on the water.

8.4          Statistics from the Canal and River Trust suggest that life satisfaction is 10% higher if you live near the water. It is therefore essential that as we emerge from this health pandemic these benefits are promoted more widely. The results from our latest Watersports Participation Survey also told us that 67% of individuals that participate in boating or some form of watersport activity do so for mental and physical wellbeing.

8.5          We also believe VisitEngland could begin to collect and publish information on overnight stays and day trips on boats. The most recent data on inbound tourism includes information on overnight stays in caravans, mobile homes and hotels among others but does not capture stays on vessels. Their Awards for Excellence similarly fail, in their current form, to promote the boating tourism sector. This is because whilst there are bespoke categories for B&B and Guest House of the Year there are no such awards for the boating tourism industry. We would therefore recommend that consideration is given to the sector to ensure it is given the promotion and recognition it needs to emerge from the COVID-19 pandemic.

9           Appendix

Table 1