Why hospitality has failed to make an impact on the UK government’s levelling up agenda

What role does the UK government think hospitality has to play in economic development? Well, not much if the latest round of winners to be announced from its Levelling Up Fund are anything to go by. After all, the fund is a central plank of the government’s flagship policy and the industry barely registered when it came to funding allocations.

On 18 January this year, the Department for Levelling Up, Housing and Communities (DLUHC) published a database detailing all the projects that had been successful in attracting investment from the fund’s second round. Hospitality Investor interrogated the data and could only find one out of more than 100 projects that involved hotel development or refurbishment. So, what are we to make of the government’s priorities?

Few would argue that the sole hospitality-related winner was not deserving of investment. The project is to be found in Gateshead on the south bank of the Tyne opposite Newcastle city centre. To be known as The Sage, the development includes an international conference centre - a first for the region - a music venue, bars and restaurants, as well as two hotels. 

The site sits between the Baltic Centre for Contemporary Art to the east, an existing concert hall - confusingly also known as The Sage, although that will change - to the west and Gateshead College to the south. It has been earmarked for a development much like the current iteration for well over three decades, but something has always scuppered the plans. Since the early noughts, the site has looked like an opportunity waiting to be realised.

Most recently, the project was put in doubt last year when Gateshead Council leader Martin Gannon told The Times that the project could no longer go ahead without further funding from government due to the spiralling costs of energy and materials, although a council spokesperson later insisted that the project would go ahead. “Whilst there are challenges that require government support we are committed to delivering this project to level up Gateshead and the North East,” they said.

Failed bids

So, good for Gateshead that it’s got the funding it wanted. But that doesn’t explain why no other projects involving hotels got even a sniff of investment. Unfortunately, a full database of bids into the second round of the Levelling Up Fund is not available, meaning that a robust analysis of what percentage of bids involving hospitality were rejected is impossible. While far from exhaustive, however, Hospitality Investor managed to identify several such projects that ultimately failed to attract funding. 

Gloucester City Council’s £20 million City Centre Regeneration bid, which involved both public and private sector partners, is a case in point. The bid included three elements, comprising an attempt by the University of Gloucester to take over the city’s redundant Debenhams building in order to deliver courses in the city centre for the first time; a new digital innovation hub known as The Forge; and The Fleece, which would have been the city’s first four star hotel.

Signing off the bid, Gloucester MP Richard Graham said: “The combination of 4,700 university students, a 60-bed boutique hotel and a cluster of cyber secure start-ups will be good for jobs, education, growth and culture.” The use of the word “will” in that quote was, unfortunately for Gloucester, misplaced. 

Then there was Blackpool and Wyre councils’ joint bid, which was, in part, successful. The January announcement saw the local authority win £40 million from the Levelling Up Fund to help create a new carbon neutral “multiversity” campus in the town, which DLUHC said would put the Talbot Gateway area “at the forefront of artificial intelligence and robotics learning”. Blackpool South MP Scott Benton said the news was “a big win for Blackpool”. 

However, Blackpool Council had also submitted a separate bid for £8 million, which it wanted to use to contribute to the costs of converting the town’s former post office into a Hotel Indigo. That bid fell on deaf ears, despite the fact that tourism remains an important, if not vital, part of Blackpool’s economy. A bid for £15.4 million to improve transport infrastructure in the town also failed. 

Missed opportunities

Hospitality Investor identified a further three projects involving hotels - in Bolton, Moray and Torfaen - that were also turned down for funding, but there will almost certainly be others, potentially many others. For Tony Sophoclides, strategic affairs director at industry umbrella body UKHospitality, the lack of investment represents a missed opportunity on the part of DLUHC.

“If you're in government, the one thing that you cannot deny about hospitality is its ubiquity,” he says. “And when we're talking about levelling up being something that is meant to be across the entire nation, so 650 constituencies, I think you're going to struggle to find one that doesn't have a fairly decent hospitality presence.”

Indeed, Sophoclides finds the government’s decision making all the more baffling given that securing economic growth - pretty much any economic growth, anywhere - is such a pressing concern as the UK teeters on the brink of a recession. “History showed us only as recently as after the 2008 financial crisis that hospitality is the sector that has the capacity to outstrip national growth and therefore help drive it,” he says. 

“It's in the top five or six employment sectors across the nation, very often higher up. And we're living in times where one of the government's objectives, which very much feeds into levelling up, is getting the economically inactive into work. Hospitality jobs at the entry level are certainly a great opportunity [to achieve that]. The industry still has around 150,000 vacancies. We still have vacancies. This is all about unleashing the potential of hospitality to drive growth.”

Not everyone, however, believes that the case for investment in hospitality is so clear cut. Tom Cunningham, UK regional director, hotel capital markets, at property firm Savills, says that local authorities in particular ask his team to look at a lot of sites with a view to allocating them for hotels, often after establishing that they aren’t right for alternative uses. 

“We come at it from a different point of view and say ‘what are the demand drivers to ensure that a hotel is successful in that location?’ Quite often people will say that they’ve got a site next to a third division football ground or something. That will provide some room nights, but actually what's going to fill that hotel on a wet Tuesday in February or a cold Thursday in November? What are the demand drivers for that hotel?”

Of course, Cunningham’s argument rests on the idea that civil servants at DLUHC and ultimately departmental ministers have conducted the sort of robust market testing that he and his team, as well as other property firms, would conduct as a matter of professionalism. And that is a big assumption. For now, it seems that hospitality is not deemed to have much of a role to play in the levelling up agenda.