The UK hospitality industry has expanded at a CAGR of 5.9% since 2009, almost double that of the wider UK economy. However, there is no denying that the sector will face a challenging operating environment in 2024 as a result of inflation, rising bills, and staff shortages. As it stands, over a third of operators will fail to make a profit without further support from the Government.
The trade body UKHospitality has proposed a three-point plan to stimulate growth in the sector and contribute towards the wider economy ahead of the upcoming Spring Statement. Indeed, an economic report by Ignite Economics has found that hospitality could increase its direct contribution to the economy by £29 billion and create half a million new jobs by 2027.
As it stands, the support is insufficient. The Chancellor’s extension on business rates in last year’s Autumn Statement was the bare minimum hospitality owners expected. The upcoming rates rise in April following the end of the 75% rates relief will make the situation for hospitality businesses more precarious. With no further VAT relief on its way, more needs to be done to ensure the long-term development of the sector continues.
Skilled labour shortages threaten sector growth
It’s not just high bills amidst a cost-of-living crisis that are affecting hospitality businesses. Train strikes since 2022 have cost the sector an eye-watering £4 billion in lost revenue. However, most importantly, the hospitality workforce is dwindling.
Labour shortages are now 48% higher than before the pandemic, with staffing in ‘serious crisis’, according to UKHospitality. This will be exacerbated by the Government’s immigration changes, which will increase the minimum income for family and skilled worker visas, in a bid to reduce immigration.
Migrant workers are a key part of the hospitality workforce, accounting for 15% of the sector. Some of the most skilled workers come from abroad, too – at Burgh Island we have staff trained at the ESO Euroschool Hotel Academy and who developed management training programmes for Swissotel.
With 95% of hospitality migrant workers recruited last year under the new minimum threshold, and labour shortages as high as 21% for certain roles, this will only heighten the labour crisis. These immigration changes will reduce the pool of skilled workers, drastically increasing competition between hospitality firms, while simultaneously requiring employers to pay migrant workers a salary almost 50% higher than before.
While the Apprenticeship Levy has been a success in driving apprentice opportunities in hospitality, reforms are needed if the Government reduces access to migrant workers. More flexibility in what funding is used for as part of the scheme will help encourage potential workers to participate in training schemes.
Reforming business expenses
Business rates and tax reforms are also necessary to ensure the long-term future of the hospitality sector. Previous changes, such as VAT cuts and business rates relief during the pandemic have helped hospitality businesses to breathe a huge sigh of relief.
With VAT returning to 20%, and the UK having some of the highest rates of VAT for hospitality in Europe, a return to a lower rate will help businesses overcome rising prices and stymie the shift of increasing costs shifted to customers – something that 72% of operators are experiencing. Ultimately, cutting VAT to bring it in line with other countries in Europe will continue to provide revenue for the Treasury – and rather more than if more businesses fail.
The extension to the 75% business rates discount will help the average pub save around £12,800 and small business £20,000. However, with rates relief about to end and rates to rise in line with inflation – around 6.4% – this month, the Government must look at reforming business rates to ensure long-term success for the sector. A reduction, or even a freeze, in the business rates multiplier, currently at 51%, instead of the expected rise due to inflation, will aid businesses significantly, and a reduction in property tax – which is currently at 4% of GDP and the highest amongst OECD countries – will encourage investment and make the UK a more attractive country for businesses compared to its European counterparts.
Beyond the ability of the hospitality sector to supply its customers, there needs to be adequate demand. The UK remains in the top ten most visited countries globally, with tourism contributing £214 billion to the UK’s economy. However, in order to maintain this high demand, we must preserve and safeguard the future of our pubs, restaurants and hotels.
As the UK hospitality sector faces unprecedented challenges, urgent action is needed to ensure its future prosperity. With current Government support falling short of what is required, a re-evaluation of business rates, VAT, and employment opportunities for migrant workers is necessary for the long-term success of the hospitality industry, and for preserving the vibrancy of this country’s pubs, restaurants and hotels is essential to keeping the UK as one of the world’s top destinations.
Contributor: Penny Brown, MD of Burgh Island Hotel