This article first appeared in CLH News, issue 253
Three may be the magic number, but for the hospitality industry, it proved unlucky when the Government’s budget unveiled a triple-wham-my of bad news.
Having benefited from a 75% reduction in business rates for well over a year, this will now drop to 40% (capped at £110,000), resulting in an increase of approximately £7,000 for the average restaurant, according to Altus Group research.
In a move the Chancellor expects to raise £25billion, National Insurance contributions will rise by 1.2% to 15% in April, and businesses will begin paying when a worker earns £5,000 rather than £9,100.
Furthermore, the National Living Wage is also set to rise in the spring, by 6.7% for those aged 21, 16.3% for 18 to 20 year olds, and 18% for 16 and 17 year olds.
Trade body UKHospitality estimates this will add £2,500 to the cost of employing a full-time staff member and £1,140 to employing a student working 14 hours over the weekend.
So how can an industry which has already been expected to stretch almost to breaking point through years of turbulence maintain its resilience considering these fresh challenges?
A HINT OF POSITIVE NEWS
Despite the headlines, there are some nuggets of good news to be had for those seeking reassurance. An Employment Allowance increase will see small businesses able to reduce their National Insurance burden by £10,500 a year (previously set at £5,000); Corporation Tax has been capped at 25% (less for businesses making smaller profits); and there is a pledge to permanently lower business rates from 2026/27.
The Chancellor also announced the duty on draught products would be cut by 1.7% in cash terms – although this is only expected to reduce the price of an average pint by 1p.
A FRESH PERSPECTIVE
While there is no doubt that a continued show of resilience is necessary, there are ways in which hospitality businesses can seek to innovate and minimise the impact of the changes.
Stringent planning is necessary to ensure it’s possible to mitigate against increasing costs and fluctuations in income caused by external factors. This can involve the use of technology platforms which help to track workforce costs, manage inventory and prevent overscheduling.
It is also key for businesses to work closely with suppliers, to keep costs low and quality high in order to retain loyal custom. This includes ensuring suppliers of frozen, chilled and ambient food – for example – are able to fulfil promises around quick and efficient delivery times, increasing ranges so new offerings can be used to attract a growing customer base, and keeping their costs as affordable as possible.
Cashflow predictions can initially be based around the best- and worst-case scenarios, then assessed over time to see how reality compares to expectation. Within this, businesses need to have a keen eye on tracking and minimising wastage.
This is again where a strong relationship with suppliers comes into its own – enabling hospitality managers to manage their inventory effectively, and allowing them to anticipate future costs with much more precision.
SUCCESS IS ON THE MENU
While there may be a temptation to look at whether staff cuts are necessary to mitigate the higher costs associated with a larger workforce, this must be weighed carefully against the risk of detriment to customer service if this results in under-staffing.
And equally, while staff may be heartened by the increase in Living Wage, looking at long-term retention strategies to reduce turnover can also support the business’ overall budget. The CIPD predicts it costs £6,125 on average to recruit a new hire – equivalent to more than 500 hours (or 13 weeks) of pay at the new Living Wage rate.
It is also worth considering whether incoming changes which do not directly relate to the sector will, in fact, have a positive impact – such as the two-year freeze on fuel duty which will see suppliers able to keep delivery costs stable during that time. In addition, the rise in state pension may see older consumers with more disposable income to spend, so hospitality businesses can look at ways to encourage these customers through the doors.
There is no sugar-coating the Budget announcements – they are likely to cause headaches for hospitality businesses for the foreseeable; but they need not spell the end for the industry. With careful planning and consideration, it should be possible for the sector to survive – and with many now lobbying the Government about industry concerns, let’s hope positive proposals are on the menu for the next Budget.