By Kunal Sawhney, CEO of Kalkine (www.kalkine.co.uk)
The energy price hike has been the most talked about topic of recent time. For the last almost six months, energy prices have been at a record high due to the global gas shortage and increase in demand. During the pandemic, when many of the industries came to a grinding halt, energy demand declined significantly simultaneously supply was reduced, but as soon as the restrictions were eased and economic activity increased, the demand for energy moved higher.The crisis has not only impacted the energy suppliers and the household but many of the industries including hospitality, has been suffering a lot due to the record high prices.
Households across the UK have been feeling the pinch, and there is the cost-of-living crisis, which will hit consumer spending consequently the business prospects of many industries, as they are contemplating price rise amid rising costs.There has been a continuous rise in overhead costs for hospitality as well and it has become inevitable for them to keep absorbing it for long.
INDUSTRY BOUND TO INCREASE PRICES
The continuous price rise has forced the hospitality sector to pass on the costs to the customers, and in the coming few months price rise impact can be seen on night outs.There has been an overall price rise in the economy after the pandemic. It is not only the energy price but staff wages, food and drinks, rent, and insurance bills, all have seen a dramatic rise since the lockdown restrictions started being lifted.
The latest survey from the industry body, UK Hospitality’s revealed that a majority of businesses surveyed are going to pass on the increased cost to customers.The hike could be as high as 11 per cent, more than double the current CPI (Consumer Price Index) inflation of 5.4 per cent.The hike may sound exorbitant at first sight, but as being forecast, inflation is going to see a level of 7 per cent by April 2022, the businesses are forced to take this measure. Pubs, bars, restaurants, and hotels have to cope-up with the dramatic rise in overheads after the pandemic.The survey reported that businesses have been witnessing an average rise of 41 per cent in electricity, 19 per cent in wages, 17 per cent in food prices, and 21 per cent in insurance cost.
Hospitality businesses, especially the smaller ones, have been bearing the brunt of the energy crises, and many are facing an existential threat. On one side, there is cost pressure, while on the other, there is a concern of falling revenue despite the government offering different support measures.The energy crisis has resulted in many longstanding eateries struggling to get an affordable energy deal. Energy cost has doubled for many restaurants, even suppliers are shying away from handing contracts to restaurants, fearing shut down. At a time when many of the energy suppliers have gone bust, the hospitality industry can’t expect much from them as well.
VAT RETURNING TO 20% CAN INTENSIFY THE WOES
VAT rates are proposed to return to a 20 per cent level this April.The government had announced a temporary reduction in VAT for the hospitality industry, which currently stands at 12.5 per cent. However, with no further announcement in budget or from the government, it is all set to revert to its pre-pandemic level.
The industry has been demanding an extension ofVAT rebate beyond March 2022.The demand is not unwarranted, as the Christmas period witnessed a complete washout for the industry with a surge in Omicron variant resulting in severe levels of cancellations and many businesses are on the brink of collapse. Keeping the rates at the current rate would help many to survive, while for the government, it can help in maintaining and creating jobs and ensuring the sector contributes its full in driving the economic growth.
The coming months are going to be very crucial for the hospitality industry, it is not only the VAT rate increase, but the industry will have to tackle the wage hike in April as the National Living Wage will increase by 6.6 per cent to £9.50 per hour, and Employers National Insurance contribution would rise by 1.25 per cent.All these factors are compelling the hospitality industry to go for a price rise. Government can extend a helping hand if it wants the industry to continue contributing to the economic growth.