Hospitality firms warn of closures amid wage and business rate increases

Recent research shows that morale in the hospitality industry remains low, with one in five businesses reporting that they may have to call it quits within the next 12 months amid the upcoming wave of cost increases.

Notably, from the 1st of April, pubs, restaurants, cafes, and music venues will have to grapple with increases to business rates and the National Minimum Wage. 

The combined impact of these changes, alongside existing cost pressures, is causing significant concern throughout the industry.

Confidence remains low across the sector

UKHospitality commissioned the survey of over 20,000 venues alongside sector analysts, CGA by NIQ, and other voices from the pubs industry. 

The results indicated that, in addition to the 20% of respondents who felt their business was at risk of closure within the year, nearly half (44%) expressed pessimism about their situation. A further 17% reported operating at a loss, and 2% felt their businesses were already unviable.

Survey respondents said employment costs were the biggest concern, followed by business rates and rising food and drink prices, highlighting that labour costs now dominate a crowded field of sector-specific difficulties.

External pressures are also adding complexity, as rising energy costs are expected soon as a fallout from the US-Israeli war on Iran, as well as higher ingredient prices due to supply chain pressures. 

All in all, these factors combined are forcing businesses to act in survival mode, with many reassessing pricing and some already scaling back hiring. 

Cost increases hit from multiple angles

Hospitality firms are facing imminent increases to employment costs, as the National Living Wage and National Minimum Wage are set to increase from April, aka this week.

Data from Employment Hero, published last week, showed an 18% rise in sector pay over the past year, indicating that many hospitality businesses have had no choice but to bump their team’s wages.

At the same time, changes to employer National Insurance Contributions (NICs) are set to add further pressure to payroll costs.

The icing on the cake is that many businesses are also facing increased business rates bills as of the 1st of April, which coincides with the end of pandemic-era relief for many businesses. 

Industry estimates place the average cost of the rising rates at around £28,900 for hotels, while restaurants face increases of about £1,800, as reported by The Guardian. 

So, for businesses already dealing with tight margins, the combined blow of higher wages and business rates bills will be difficult to absorb. 

Relief measures offer a glimmer of hope

To end on a brighter note, there are some signs of support within the system. Relief schemes, albeit smaller and more temporary, are still in place to limit the immediate cost shock of business rates increases, and pubs will continue to benefit from a discount under the retail, hospitality and leisure (RHL) framework.

Industry groups say these measures are welcome, even if they do not fully compensate for rising costs. For many smaller operators, they may provide some breathing space at a time when pressures are at an all-time high.

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Planet of the Grapes founder Matt Harris has over 25 years of experience in hospitality. Read his bi-monthly column for Startups now.

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