How Hospitality Can Help the Chancellor Reduce Inflation

Tackling the three root causes of price inflation in hospitality – energy, recruitment and taxes – in the Spring Budget can prevent price increases and drive down inflation.

In its Budget submission to the Chancellor, UKHospitality has highlighted how the right support on energy, unlocking the labour market and reducing taxes on the sector can lead to a significant reduction in the rate of inflation and deliver growth.

Severe cost increases in hospitality, particularly across energy, food and drink, has left venues with no choice but to pass these on to the customer, therefore contributing to the overall rate of inflation.

Without any interventions by the Government, cost pressures will intensify and drive up prices, with most operators already planning to increase prices by 6-10% when energy support is reduced from April.

To avoid this scenario, UKHospitality has asked the Chancellor to:
• Introduce a new, lower business rates multiplier for hospitality to make our tax system fit for purpose.
• Implement minor, short-term immigration reforms to counter the sales being lost due to labour shortages, particularly abolishing or reducing the Immigration Skills Charge and offering more flexibility to students to work longer hours.
• Reform the Apprenticeship Levy to enable funding to be used for other forms of training and to change its operation to offer greater flexibility to employers and employees over training – and incentivise economically inactive people into work.
• Introduce a temporary, reduced rate of VAT to mitigate against the extraordinarily high energy prices businesses are facing, to stimulate growth and cut costs.
• Give clear direction to OFGEM to intervene in the non-domestic energy market and instruct suppliers to renegotiate over-inflated contracts.

UKHospitality Chief Executive Kate Nicholls said:
“Inflation is the millstone that hangs around all of our necks and the Government has made it clear tackling these cost increases is a key priority. We agree, and the Chancellor can take a significant step towards achieving that in the Spring Budget by unlocking the potential of hospitality.

“Our venues have been ravaged by cost increases in every area, whether that’s energy, food, drink or recruitment. The scale of these costs have forced businesses to increase prices for consumers, something which has contributed to inflation.

“No business wants to increase its prices. Hospitality wants to be part of the inflation solution, not part of the national problem.

“There are measures that can be taken to somewhat relieve these pressures on venues and allow them to take advantage of demand, increase sales and keep prices low. For example, reforming the Apprenticeship Levy and offering employers more control over the deliver and funding of training would allow many of the economically inactive get back into work, at almost no cost to the Government.

“While we also recognise that the public purse strings are being held tight, there is a strong argument to tackle the tax burden on businesses in a responsible way. A temporary reduced rate of VAT would reduce costs, which would help lower inflation, and drive demand and growth. We saw its success during the pandemic and that can be replicated now.

“The sector has shown its potential to deliver rapid economic growth and tackle inflation, something the country desperately needs, and the Chancellor has the power at the despatch box on 15 March to enlist hospitality to help achieve his aims. I would urge him to do just that.”