UKHospitality: At the crossroads

I gave evidence to the Low Pay Commission (LPC) recently, as it prepares to advise the government on minimum wage policy for 2025. UKHospitality fully supports the LPC’s wider aims, but we’re urging a cautious approach to minimum wage setting if the sector is to avoid job losses and increase levels of investment.

We back the LPC’s remit to maintain the National Living Wage (NLW) at 66% of median earnings for those aged 21 and over from next April. However, this year’s 1^st April NLW increase of 9.8% to £11.44 an hour means our already vulnerable sector, desperate for some semblance of economic stability, has seen a 20% NLW rise in two years, and 39% since 2019.

Only by limiting employment growth and increasing prices have hospitality businesses been able to manage such dramatic increases, but at the cost of rising sector inflation. While automation is another way to absorb NLW increases, it means fewer people in what is, after all, the ultimate people business.

As part of my evidence, a survey of UKHospitality members provided the LPC with a candid snapshot of just how NLW increases are affecting our industry. The 131 respondents employ 233,270 at more than 7,000 venues. Of those, 70% were small- and medium-sized enterprises with fewer than 250 employees.

The results revealed that more than 74% of respondents have seen prices increase. Investment and profit, however, fell steeply, at 58% and 82% respectively.

Members’ responses also highlighted that NLW increases continue to put a brake on career progression for those staff with supervisory and managerial responsibilities, because they don’t match those for entry-level employees. Around 60% of staff are affected directly by NLW, with close to 30% being indirectly affected through knock-on increases.

Implications
What would the implications be for UKHospitality members if the LPC’s 2025 remit of maintaining the NLW at 66% of median earnings from April 2025 – that’s £11.89 per hour – is met? The member survey suggested businesses will see a further 5.6% increase in payroll costs, meaning payroll will make up a full third of turnover on average across the sector.

This comes on the back of reported wage increases of 14% through 2023 and a wage cost increase of 9% from this April. Our survey saw 66% of businesses reporting significantly higher wage costs, with a further 29% reporting increases. Indeed, at more than 55%, total costs as a proportion of hospitality turnover are at record levels, driven largely by labour costs that have increased from around 25% in 2010, to close to 30% by 2021.

Hospitality finds itself at something of a crossroads, then, as it attempts to balance the need to meet NLW requirements, while at the same time battling, still, to make a full and proper recovery from four-and-a-half years of economic setbacks. It’s sobering to learn from our survey that 28% of member businesses are operating at a loss or are unviable, that a quarter have no cash reserves and, most concerning of all, that 18% believe they could fail in the next 12 months.

I fervently hope, therefore, that the evidence I was able to present to the LPC will elicit a more restrained approach to meeting its 2025 remit. We’ve cause to be optimistic, because there’s evidence that the decision-makers are listening to us, with the newly elected Labour government having already taken heed of UKHospitality’s pre-election calls for business rate and planning reform.

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