75% income support and working capital are key for survival of Ireland's hospitality sector amid COVID-19 crisis

23 March, 2020

COVID-19 has created an emergency situation within Irish hospitality with the near closure of the entire industry which covers hotels, restaurants and pubs. The sector is a key component of the Irish economy worth up to €7.6 billion annually, representing up to 2.3% of GDP, and employing 180,000 people, notably across all regions. While final data is not yet available, approximately 100,000 people may have already lost their jobs in this sector with countless more indirectly affected.

A business woman leads a meeting with three other people in the background.

By way of helping the national effort and providing some proposed alternative support measures, a new report by PwC 'COVID-19 and the Irish Hospitality Sector: Impact and Options' published today helps identify key proposals to protect employment and businesses across the country. The report identifies two step-change actions with most effect:

  • Firstly, to step in and keep employees in the sector in their jobs – covering 75% of the net take home pay of employees in the sector, having a net additional cost to the exchequer of €2.4 million per week when compared to the €203 per week unemployment payment,  and
  • Secondly, to provide an interest free loan mechanism to provide working capital for the industry to restart itself post COVID-19. The report reveals that, unsupported, a business in Ireland’s hospitality sector could take up to 62 weeks from the onset of a COVID-19 closure to return to profit and recoup losses sustained during the closure period

Owen McFeely, Director, PwC Ireland Retail and Consumer Practice, said: "These proposals are aimed at being constructive and supportive to the efforts Government is already seeking to provide at this vulnerable time. Hospitality is core to our DNA and goes to the heart of brand Ireland. Without major step-in supports, we will see significant human, economic and societal stress, particularly for areas outside the Dublin region where hospitality is often the cornerstone of local communities."

“We recognise that this is a significant action over and above current supports, however bold steps are necessary now to ensure that we do not have a delayed recovery. To avoid or alleviate the damage of another recession, it is simply essential that employees are ready to go back to work when this situation eases. This isn't just about the hospitality industry, the options and suggested framework identified in this report can easily be applied to other sectors and industries."

This PwC report argues that bold and early action will ultimately be positive and impactful on both our economy and wider society.

John Dillon PwC Ireland Retail and Consumer Practice Lead said, "A subvention-based approach as proposed allows businesses to remain connected with their employees. This will be critical to enabling the sector to mobilise rapidly and transition to post-COVID-19 realities once current social barriers are lifted. It 'flattens the curve' economically. The hospitality sector, supported by Ireland's  food industry, has spent many years developing Ireland's image and reputation as a unique destination for food tourism. Failure to support key players including restaurants, hotels and pubs and the wider ecosystem including local farmers and producers could do irreparable damage to the long term future of the industry."

ENDS

Notes to editors

About this report

This analysis was undertaken in the last number of days by a team of PwC experts in the retail and hospitality sector supported with contributions from Jim Power, all of the industry bodies and a number of firms across the sector. PwC intends to update this pro-bono analysis and also examine other industry sectors in the coming days and weeks. 

Hospitality: further details

Supporting the hospitality sector via the currently proposed COVID-19 unemployment payment option (€203 per week per employee) could directly cost the State €36.5 million per week. However, incorporating the impact of lost exchequer payroll taxes means that the true cost of this approach is €41.7 million per week.

However, implementing a 75% income continuance or Payroll Subvention scheme, proposed by PwC, will cost €44.1 million per week. This outcome enables policymakers deliver a more efficient and effective labour market solution for an additional €2.4 million per week. Use of a Payroll Subvention Support mechanism delivers a marginally more expensive outcome whilst delivering a range of additional economic benefits.

The subvention period has been calculated based on a 20-week close-down and is based on hotels, restaurants and pubs within the hospitality sector. 

Such income continuance would be a scheme (Payroll Subvention) where the State would subvent employers to pay staff under strictly limited conditions as follows:

  • 75% of take home pay
  • Benefit capped at the equivalent of an annual salary of €50,000 per annum
  • Strictly limited to one week after the end of social distancing

Whilst a payroll subvention supports the industry during the period of closedown, businesses will continue to generate costs when closed albeit at a lower level. When these businesses reopen it is likely to face much lower levels of demand for a period of time as consumer confidence, tourism and corporate spending all return to pre-COVID-19 levels. Therefore, financial stimulus including the provision of interest free working capital options needs to be put in place in order to enable these businesses to reboot and reopen for trade. Even with support, the losses incurred during the closure will take some time to be cleared, initial analysis indicated a period of 62 weeks for one business to return to the black.


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Contact us

David McGee

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 8785

John Dillon

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6415

Owen McFeely

Director, PwC Ireland (Republic of)

Tel: 353 1 792 8162

Johanna Dehaene

Corporate Communications, PwC Ireland (Republic of)

Tel: +353 1 792 6547

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