The leading figures in the hospitality are warning of the unprecedented damage the rise to employment costs announced in last months budget will inflict on the sector.
Kate Nicholls, Chief Executive of UKHospitality, and UKHospitality board members, which includes the bosses of Fuller’s, Stonegate Group and Whitbread, have written to the Chancellor, supported by a further 209 hospitality businesses, to outline the impacts the additional £3.4 billion in cost facing hospitality in April will have, warning that the additional tax bill will force some businesses into liquidation and that others will have to drastically reduce their headcount and slash investment in order to meet the additional costs imposed by Labour’s first Budget.
The open letter to Chancellor Rachel Reeves, warns that the cost increases will cause:
• Small business closures within a year.
• Businesses to reconsider investment plans
• Jobs to be drastically cut.
• Hours for team members to be reduced.
• Contract caterers to struggle to meet important public sector catering contracts for schools, hospitals and prisons.
And, also comes as several of the UK’s major supermarkets have expressed concern at true cost of the employer national insurance contributions (NICs) rise to their business.
Tesco, the UK’s largest private employer, faces a £1bn increase to its national insurance bill over the course of this parliament, according to Morgan Stanley analysis, with nd rival supermarkets Sainsbury’s and Asda both revealed last week that they were expecting to pay an additional £140m and £100m respectively in employer NICs.
Wetherspoons founder Tim Martin also used a trading update last week to reveal his pub chain faced additional costs of approximately £60m because of measures unveiled in the Budget.
The open letter, coordinated by the hospitality trade body UK Hospitality, also criticised the changes the government made to the threshold at which employers need to start paying NICs.
As well as raising the overall rate of employer NICs by 1.2 per cent, the government cut the threshold significantly from £9,100 to £5,000, and the letter adds: “The threshold change brings many team members into employer NICs for the first time. We estimate the threshold change may be four times the cost of the new headline rate.”
The signatories have put forward to the Government two measures to mitigate this impact:
1. Create a new employer NICs band from £5,000 to £9,100 with a lower rate of 5%; or
2. Implement an exemption for lower band taxpayers working fewer than 20 hours per week, targeting support for part-time and lower paid workers.
The letter says:
“The changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon. Unquestionably they will lead to business closures and job losses within a year.
“The threshold change brings many team members into employer NICs for the first time. We estimate the threshold change may be four times the cost of the new headline rate.
“There is no capacity to pass the costs onto customers. Businesses would be reluctantly forced to raise prices by 6-8%, fuelling inflation, yet could not realistically do so as our customers are at the end of their ability to pay more. Instead, many businesses would have to reconsider investment and drastically cut jobs and reduce the hours of team members.
“Contract catering, a significant part of our sector, would struggle to meet important public sector catering contracts for schools, hospitals and prisons.
“Without action, many businesses will be forced to reconsider their growth plans, and many smaller venues may be at risk of closure, risking future job creation in communities up and down the country.
“We know you are determined to ensure that growth is available to all. Yet this change to NICs does the opposite, balancing the books on the backs of the businesses which provide jobs to all in society, nationwide, while sparing businesses that used technology to shed jobs.
“We therefore ask that you consider measures to protect businesses who employ lower earners. We understand that these proposals come at an immediate financial cost, but we are absolutely firm in our belief that the lost growth potential which would result from inaction would be substantially more expensive, for the economy, for society and for the public finances.”
Darren Jones, chief secretary to the Treasury, told the BBC’s Sunday with Laura Kuenssberg programme that the changes had been designed in a way “that tried to limit the extra cost on small business”.
A spokesperson for HM Treasury said: “More than half of employers will either see a cut or no change in their national insurance bills, and to support businesses we’re permanently cutting business rates for every shop on the high street from 2026.”
