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20% of UK Restaurants Risk Insolvency

20% of UK restaurants face insolvency due to trough trading conditions, according to a survey from accountancy firm Moore Stephens, warns that increased staff and food costs were putting a strain on operators.

Moore Stephens’ research showed that a up to 15,000 restaurants are faced with the possibility of going under due rising labour costs and an escalation of food prices thanks to a weakened pound.

Over half of all food is imported, with 75% coming from the EU, and, following the Brexit vote imports have become increasingly costly for restaurateurs with sterling more than 10 per cent weaker against both the Euro and US dollar.

Furthermore, an increase in business rates will affect 42 per cent of restaurants in London, accountants Moore Stephens said.

Staffing costs, with the National Living Wage also increasing to £7.50 an hour in April, up from £6.70 in 2015, is set to rise to at least £9 an hour by 2020, putting further pressure on operators.

Insolvency Service data shows that the number of restaurants entering insolvency has increased by 13% in 2016/17 to 1,544 from 1,363 in 2015/16.

Jeremy Willmont, partner at Moore Stephens, said: “The restaurant sector is one of the most competitive for a business to survive in at the best of times and current market conditions make it even tougher.

“Restaurants have been particularly impacted by rising costs linked to the weak pound, and will continue to face difficult decisions over how much of their increased costs they try to pass on to consumers.

“The increase in the number of insolvencies in the last year is indicative of how difficult the market conditions are now. Finances can be uncertain in the restaurant sector, but this is beyond the norm.

“In such a competitive market, restaurants need to be wary of building up losses and debt now in the hope of future profits, as the industry looks to be facing a prolonged period of tough trading conditions.

The Association of Licensed Multiple Retailers (ALMR) said the eating and drinking out sector is facing a £213m tax hike through increases in rates and duty.

“This research acutely demonstrates the unique pressures that eating and drinking out businesses are currently facing. With Brexit on the horizon, next month’s Budget is absolutely crucial for the sector as cost pressures are rising at a time of maximum uncertainty for employers,” said ALMR chief executive Kate Nicholls.

She continued: “The government has the power to provide support for these businesses that will ease pressure, provide stability and help them unlock even greater potential.”

 

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