The hospitality industry was given little to cheer about in the government's 2008 Pre-Budget Report.

Although chancellor Alastair Darling introduced a temporary 2.5 per cent cut on VAT, from 17.5 to 15 per cent, from 1 December until January 2010, duty on alcohol, cigarettes and fuel is set to increase. Prior to today's report, Bob Cotton, chief executive of the British Hospitality Association, had urged the government to keep investment flowing by reinstating the capital allowance on new buildings and facilities from the 2007 Budget.

Cotton had also called for the abolition of the Hotel Buildings Allowance to be postponed, as the association saw it as threatening new investments in the sector.

Neither of these were mentioned in today's budget.

The Campaign for Real Ale (CAMRA) was quick to condemn the increase in alcohol duty, saying that the decision would increase the rate of pub closures.

CAMRA chief executive, Mike Benner, said: “The Chancellor's refusal to allow beer drinkers to benefit from a VAT reduction means that 7,500 pubs could close by the end of 2012.

"The Government's failure to support pubs will undermine community life, ruin livelihoods and deprive people of an affordable night out at a local pub.”

John McNamara, chief executive of the British Institute of Innkeepers, went a step further and added that the chancellor's measures were akin to a "poison pill" for the pub industry.

“Here we go again, I’m staggered that, while all other businesses are being given a boost by the lowering of the VAT rate to 15 per cent, the licensed retail sector is yet again being singled out with an alcohol duty rise to off-set the cuts," he said.

“But the real poison pill is that the duty will be maintained after the VAT cut is restored in January 2010. Despite all the representations our industry has made to the Government via our many channels, the Chancellor continues to batter us."

Smaller companies, however, were offered some help in improving their cash flow. The government will give £4bn to the banks to be allocated to small firms, and the trading loss carry-back will be temporarily extended from one to three years for companies with losses up to £50,000. The chancellor also pledged to invest £1bn into the Small Business Finance Scheme, which will be launched in early 2009, to enable government supported lending by banks.

Neil Morgan, head of pubs and restaurants at Christie + Co, said: “The pre-budget report from the chancellor is a mixed blessing for the hospitality sector. On the one hand a number of measures were announced to support small businesses, such as a temporary increase in tax relief thresholds for empty properties and more money given to banks for the purpose of helping small firms. "There was also the much trailed cut in VAT, which will hopefully generate consumer spending on the high street and transfer through to hotel stays, plus out-of-home eating and drinking out.

“However, on the other hand calls to reduce alcohol duty and the burden faced by the pub sector have been ignored, which in the current trading conditions the sector faces is another blow. The government has missed a trick by not giving a much needed helping hand to the licensed trade by charging extra duty on off sales.”