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The hospitality sector needs a renewed cost of living package to pull it back from the brink

The hospitality sector needs a renewed cost of living package to pull it back from the brink

(Alamy)

4 min read

The cost of living crisis is causing hardship not only to individuals and families but also to the businesses that employ millions of people in the United Kingdom hospitality sector.

The “cost of doing business crisis” has put many of those businesses on the brink of closure.

Urgent action is required from government, including a package of financial support and a renewed strategy for the sector. Without this, many business owners – whether running a community pub or a chain of restaurants – could cut their losses and close their doors. Irrespective of whether it is high street chains such as Byron Burger, shutting branches across the country from Manchester to Kent, or a small bistro like Joanna’s in Crystal Palace closing its doors after 45 years, the economic situation in recent months has gone from bad to worse.

The current crisis means that businesses would have to take 120 per cent of 2019 revenue just to stand still

Recent BBC analysis found that last month, 320 businesses in the food service industry – including restaurants, pubs, cafes, and catering firms, were forced to initiate corporate insolvency procedures. An increase of 41 per cent compared to the same month in 2019.

Across the sector, UK Hospitality figures suggest almost 5000 venues closed permanently last year – with three quarters of these failing in the last six months of 2022. That equates to a contraction of around 5 per cent. Around nine out of 10 are independent venues, and the current tight margins and economic situation means that multi-site operator or medium sized businesses can’t take the sites over.

Following two years of Covid restrictions, the knock-on impacts of the war in Ukraine have been one crisis too many for an already beleaguered sector. Major hikes in food prices are just part of the cost-price inflation for the sector – currently running at 18 per cent, double what it was at the start of 2022, and forecast to rise to about 20 per cent by April. Energy prices also continue to rise with many businesses having seen fuel costs double or even triple. Little wonder that energy bills are often cited as the final straw.

The current crisis means that businesses would have to take 120 per cent of 2019 revenue just to stand still. Half of the sector is operating at or below break-even and a third have no reserves to rely on. Where businesses are not at breaking point, they are struggling to find staff and labour shortages in the sector are around 9 per cent. Footfall, meanwhile, is down due to pressures on household budgets – and with one in five people saying they plan to go out less to make ends meet, the outlook for 2023 is bleak.

Travel disruption is a further factor affecting the sector, so the government needs to look to what more can be done to resolve the rail dispute. As transport minister Huw Merriman has admitted, it would be cheaper for the economy to increase public sector pay offers; not entering meaningful negotiations is a blinkered and ideological decision.

Earlier this month, the Chancellor described the current level of energy support for businesses as “unsustainably expensive” and will replace a cap on costs with a discount from April through the Energy Bills Discount Scheme. A change in approach described by UK Hospitality as representing a “£4.5bn bill hike”.

A U-turn on support for the sector in relation to energy bills and a retention of a permanent lower rate of 12.5 per cent VAT would be welcome. But either way, the government’s 2021 Hospitality Strategy now looks lacking in its understanding of the threats to the sector, and an urgent rethink is required if the then business secretary’s remarks about “the social value of our hospitality businesses” is not to be lost.

 

Baroness Twycross is a Labour Peer.

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