Driving growth and constraining inflation: hospitality at the heart of the everyday economy

Released On 16th Feb 2023

Driving growth and constraining inflation: hospitality at the heart of the everyday economy

Hospitality is a mainstay of Britain’s ‘everyday economy’ and can be key in tackling inflation and generating economic growth, given the right support in the Budget.

The below proposals would help boost investment in key areas everywhere across the country, while generating enterprise, delivering education and providing employment, as per the Chancellor’s key components for long-term prosperity. These measures recognise the financial constraints on Government so set out short-term measures as well as longer-term levers that the Budget could set in train. To realise those in practice, inflation must first be under control. Currently, the acute squeeze on margins and pressures on price means that we cannot hold back price increases without sacrificing business viability.

Hospitality prices increased 10% in April 2022, leading to a 1.4ppt increase in CPI. Businesses have had multiple price increases this year, and another 6%-10% is planned by operators in April due to the energy subsidy taper, the National Living Wage and additional supplier price increases by food and drink producers. Food inflation has been double -digit since February 2022 and has now hit 24% - or 21% including drink. So tight are margins that further price increases are baked in. Without any adjustment to additional energy support or extension of rate relief to larger businesses, cost pressures will intensify, driving up prices, with few indications this will abate in the short term.

UKHospitality urges that these challenges are addressed urgently, as the underlying business of operators in our sector remains strong and viable. If supported through the intense ‘cost of living crisis’ and squeeze on the ‘cost of doing business’, we are forecast to recover strongly and grow quickly.

Hospitality has done this before: it grew 5% year-on-year after the pandemic, generating one in six new jobs and investing £10 billion per annum (source: ONS). We created nearly a quarter of a million jobs from June 2021- September 2022, one in five of all new net jobs. The WEF and WTTC forecasts for tourism, three -quarters of which is hospitality, are currently at 3.2% (double rate of economy overall). Hospitality revenue has rapidly recovered to prepandemic levels in nominal terms (though due to inflation is still behind pre -pandemic levels in real terms).

Hospitality is suffering from ‘long economic Covid’ but has rapid and demonstrable growth potential, can drive stifle inflation and contribute to deficit reduction through higher tax receipts.

To achieve this our businesses need the headroom and flexibility to invest in our people, places and in growth:

• Investing in people: delivering skills for our workforce, and attracting people into work via Apprenticeship Levy reform, including NIC reductions for over-25s, and in-work incentives.

• Investing in place: delivering regeneration in towns and cities across the country through licensing and planning reform and structural reform of commercial rents.

• Investing in growth: delivering greater freedom to invest by removing unnecessary red-tape, reform of the business rates system and boosting liquidity through tackling debt.

People

Following the pandemic, hospitality vacancies hit record levels, with labour shortages resulting in £22bn p.a. in lost sales and costing the Treasury £6bn in receipts, as businesses restricted trading hours. The sector has set out its ambition to deliver skills and jobs across the country in its Workforce Strategy. The Budget can empower us to deliver greater skills training and attract the economically inactive into work.

UKH proposes Apprenticeship Levy reform to enable funding to be used for other forms of training via a more modular approach into work and training, and greater apprenticeship take-up over time. Accompanied by changes to the system’s operation it would create greater flexibility in the system, so employers and employees have more control over their training delivery.

While skills investment can tackle sector vacancies, short-term action can plug gaps and trigger growth. We propose some minor, short-term immigration reforms that will unlock the sales being lost due to labour shortages. Alongside joint efforts between Government and industry to tackle economic inactivity including incentivising students, this would remove barriers for people to return to the labour market and offer more skills funding towards economically inactive groups, such as the over-50s.

Place

The ubiquity of the hospitality sector, with a presence in every community across the UK, makes it the perfect sector to deliver the Government’s levelling up agenda but there are presently too many barriers to investment. Hospitality businesses consistently report delays to planning permission of up to 12 months. A streamlined process of planning approval for low-level development would unblock projects and deliver growth – such as extensions and outdoor seating capacity.

Capital for investment is also a challenge for our businesses, compounded by soaring energy costs, to the detriment of local communities. To reverse this, we need Government to give clear direction to OFGEM to intervene in the nondomestic energy market, including to nullify contracts agreed at the height of the market with limited competition.

Growth

The hospitality sector can expedite growth in every part of the UK but this will need support. The success of the lower rate of VAT for the sector during the pandemic was a blueprint for stimulating growth. It would also be a clear downward drag on inflation, either through reduced prices or avoiding increases. We propose a new temporary reduced rate of VAT to mitigate against the extraordinarily high energy prices our businesses are facing, to stimulate growth and cut costs.

It is also vital to address the inherent, systemic disparity in non-domestic rates, which holds back growth and investment for hospitality businesses. Government should introduce a new lower business rates multiplier of 35 pence from 1st April 2024, as part of a strategy to make our tax system fit for the 21st century.

Conclusion

These measures will allow us to explicitly deliver on the Government’s economic vision. As an innovative sector, we can deliver enterprise; our commitment to skills will embed education throughout our workforce; we have an unrivaled employment record, generating a quarter of a million jobs in the last 18 months, one in five new jobs; and our sector is ubiquitous as it can be - hospitality is everywhere