The hospitality industry, known for its resilience and ability to adapt, is facing a significant challenge in the aftermath of the latest budget announcements. With substantial increases to payroll costs and business rates taking effect, the sector finds itself in a precarious position, jeopardising crucial investment and hindering its potential for growth.
At its core, hospitality is a people business. From hotels to restaurants, bars to cafes, the success of these establishments hinges on the dedication and hard work of their staff. However, failure to address the escalating costs imposed on hospitality businesses in the Budget puts this workforce at risk and threatens the very foundation of the industry.
Forecasts predicting a robust 6% annual growth in the hospitality sector are now in jeopardy due to the burden of increased costs. Almost two-thirds of the sector's annual £5.4 billion investment for growth could potentially be diverted into covering the new payroll and business rates expenses.
The sharp rise in the National Minimum Wage and National Living Wage alone will see the sector's wage bill surge by a staggering £3.2 billion. Given that employment costs already constitute over half of operating expenses, totaling £40 billion in wages and employment taxes, this additional financial strain is deeply concerning.
Moreover, the increase in business rates, amounting to £224 million, poses a significant challenge, particularly for community-based hospitality businesses. These establishments, which play a vital role in local economies, are disproportionately penalized by property taxes, impacting their ability to thrive and contribute to their communities.
In response to these challenges, hospitality businesses are urging governments to take action to rebalance the cost burden they face. The industry's survival and ability to thrive depend on implementing measures to alleviate financial pressure and facilitate much-needed investment.
There are three key levers that governments can swiftly activate to support the hospitality sector:
• Fixing Business Rates: Replace short-term solutions with a permanently reduced business rates multiplier specifically tailored for the hospitality, leisure, and high-street retail sectors. Setting the rate at 30 pence in the pound would provide much-needed relief and stability for businesses in these industries.
• Addressing Employment Costs: Support businesses in managing the record increase in the National Living Wage by temporarily reducing the rate of employer National Insurance Contributions. Establishing a sustainable long-term path for the minimum wage is also crucial for providing businesses with certainty and stability.
• VAT Reduction: Reduce the rate of VAT on hospitality, leisure, and tourism to 12.5%, aligning with the effective policy during the pandemic and matching the average of our continental competitors. This measure would not only alleviate financial strain but also enhance the competitiveness of the sector on the global stage.
In conclusion, the hospitality industry urgently requires government intervention to alleviate the burden of increased costs and ensure its continued growth and vitality. By implementing targeted measures to support businesses, governments can create an environment in which hospitality businesses can thrive, contributing to vibrant communities where people want to live, work, and invest.
At AGS Group, we bring over 18 years of expertise in supporting hospitality businesses and enhancing their facilities. Our track record includes collaborations with renowned brands nationwide, such as Domino's Pizza, Tim Hortons, Costa Coffee, KFC, and others. If you're seeking assistance with facilities management (FM), don't hesitate to reach out to us today!
Let's work together to support the backbone of our communities – the hospitality sector.