UKHospitality: Fiscal fallout

Like the rest of the hospitality sector, contract caterers are no doubt taking stock post-budget, reassessing their investment and recruitment plans. Some caterers, though, face a double-whammy following the chancellor’s fiscal event.

Why? Because they rely largely – and some of them solely – on public sector contracts to supply the likes of schools, hospitals and prisons.

Although these are much-sought-after contracts, the costs are usually fixed for their duration. Therefore, some contract catering businesses will be operating on largely fixed incomes while facing rising costs due to the budget hike in Employer National Insurance Contributions (NICs) and the change to the NICs threshold, which are so damaging to hospitality businesses. Money those businesses had earmarked for investment and new employees will now most likely have to be diverted into paying those extra costs.

Hospitality sector leaders have joined us in expressing grave fears about the impact of the budget, and in particular the effects that increased employer NICs will have. This is because, coupled with changes to the National Minimum Wage and a reduced rate of business rates relief, our industry is looking at additional costs of £3.4bn-a-year – and that’s a conservative estimate.

Despite the stated intentions of the budget, it’s lower paid workers who’ll be hit hardest by the NIC changes. An employee earning, for example, £25,000 will see a 36.7% rise in their employer NICs, while it will be 74.5% for a part-time worker on the minimum wage.

This is why contract catering businesses including Bartlett Mitchell, Elior and Harrison Catering Services are among more than 200 signatories to a UKHospitality letter to the chancellor, urging her to mitigate the sort of costs that will see small business closures and job losses in the next year. It calls on Rachel Reeves to consider two measures to protect businesses employing lower earners: create a new employer NIC band from £5,000 to £9,100 with a lower 5% rate; or introducing a lower rate for lower band taxpayers working fewer than 20 hours-a-week, targeting support for part-time and lower-paid workers.

If these calls go unheeded, businesses would, in theory, be forced to raise prices by 6% to 8% to cover these additional costs, potentially fuelling inflation – but who would be willing or able to pay those higher prices in the current economic climate?

This leaves us back at thousands of hospitality businesses, contract caterers included, having to reconsider their growth plans, with many smaller operations at risk of closure. If that’s the effect on our bellwether industry, it doesn’t bode well for the growth prospects of the wider UK economy. Instead, the changes to NICs do the exact opposite, by stifling growth and halting recruitment.

Of course, the suggestions in our letter to the chancellor would come at an immediate financial cost for government. However, UKHospitality and all the signatories are convinced that inaction would be far more expensive by slamming the brakes on growth, and in turn damaging the economy, the public finances and society.

We await a response from the chancellor with bated breath.

You may also be interested in…