The hospitality industry is bracing for price rises that they fear may “prove nothing less than catastrophic” for bars and restaurants, with knock on effect that could “cause the UK’s wider economic recovery to falter.”
VAT is today rising from 12.5% to 20% as a pandemic-era tax cut expires. At the same time, the hospitality sector is forecasting cost inflation running at 18%, according to trade body UKHospitality.
The National Minimum Wage and National Living Wage both also rise today, giving about 2.5 million works an annual pay rise of around £1,000 a year. Many will be in the hospitality sector where entry level wages are low. Rising wages will put further pressure on businesses.
It leaves many in the sector forced into the unpalatable decision to raise prices to help cover the rising costs. UKHospitality said double digit price rises were likely.
The group slammed the government for failing to delay the VAT rise despite soaring energy prices. Chief executive Kate Nicholls said: “The return to 20% VAT for the sector will prove nothing less than catastrophic.
“The now inevitable price rises for consumers will dampen demand and many hospitality businesses – one in three having less than a month of cash reserves and most are carrying heavy debt burdens – will fail as a result. This can only cause the UK’s wider economic recovery to falter.”
Polling of businesses in the bar and restaurant trade by UKHospitality uncovered a 95% average rise in recent energy bills, 19% jump in labour costs, and a 17% and 14% increase in food and drink prices, respectively. A separate study by energy consultancy Cornwall Insights said small businesses were facing a 250% jump in energy bills over the last year.
Charlie Gilkes, founder and director of The Inception Group, which runs the Mr. Fogg’s chain of bars, said: “The government could have helped ease the pain and aided the recovery by keeping VAT at 12.5% for longer but now the sector is also faced with this returning to 20%. Inevitably this going to be incredibly tough to bear.”
It comes amid a wider cost of living crisis across the country as millions of households are hit by rising in energy costs, broadband bills and even inevitable rises in the cost of a night out as the government struggles to keep hold of the economy in the face of rampant inflation and tax rises. Families today face a huge increases in their energy bills and a jolt caused by an increase in council tax.
A squeeze on household budgets means most businesses would not want to put their prices up but their hands are being forced.
Prior to the coronavirus pandemic, hospitality created £130 billion in economic activity, generated £39 billion of tax for the exchequer and represented 10% of UK employment, according to UKHospitality.
