The Hospitality Sector as it Stands: Energy Costs, Inflation and Relief Schemes

Article supplied by Alliance Online (www.allianceonline.co.uk)

As the hospitality industry revels in the post-covid environment, businesses can finally look forward to a normal unencumbered summer, and with-it summer custom. But before we reach the sunny prospects of the holiday season businesses must first contend with the hurdles April has placed at their doors.

Before we touch upon April’s woes, we first turn our attention to this year’s first indication that 2022 may not be as pleasant as previously predicted. February became a notable month due to it signifying the highest 12-month inflation rate in Consumer Prices Index since statistical recording of the series began. It is thought to be the highest 12-month inflation rate since March 19921. This represents a year of increasing prices and costs being felt by both domestic and commercial spending.
Following this came the increases in energy prices which has hit the nation. This energy cap rise has bought about much concern particularly from businesses who must now re-budget their running costs and assess what their new turnover requirements will be.

As of April 13th, the state of play is as follows:
• April 1st 2022 saw an energy price cap rise of 54%.
• The increase has been driven by the global gas price rises the world has experienced over the course of the last 6 months.
• During the last 12 months a total of 29 energy companies have either exited the market or been placed under special administration due to these soaring global price increases2.
• October 1st 2022 is set to see a second energy price cap rise of possibly as much as 32%3.

The price cap increase is an alarming one for businesses as it is an immediate price increase which companies need to address now. It presents a rise which despite being forecast, the fact that it is over 50% is still a shockingly steep increase. To make matters worse, as stated above most energy companies have already speculated there will be another sharp increase in October meaning 2022 will see some of the highest energy cost surges in history.

To add to this brewing perfect storm of cost increases across the nation the hospitality industry find they are subject to yet another, the end of their industry VAT reduction4. The initiative began on the 15th of July 2020 when the government reduced the rate of VAT for supplies relating to hospitality, hotel and holiday accommodation by 5% in response to the COVID-19 pandemic. Following that on the 1st of October 2021 it was further by 2.5% to 12.5% with VAT for the hospitality industry remaining at 12.5% until 1st April 2022 when it would return to 20%.

However, there is some solace for the hospitality industry and the companies who operate within it by way of the 2022/23 Retail, Hospitality and Leisure Relief Scheme5. The government strategy provides businesses with eligible properties to a 50% relief on business rates for 2022/23 up to a cash cap limit of £110,000. This will be a well-received relief for some businesses as the scheme should provide some financial offset against the rising prices of discussed.

But it’s not all bad

Despite the overwhelming evidence suggesting the rest of 2022 is going to be taxing for businesses there is a silver lining for the hospitality industry. The market is on the rise.

For example, dining out is set to grow during 2022 by 15.5% on 2021 to be worth roughly £41.8bn6. This market value doesn’t eclipse pre-pandemic levels, but the steady rise shows the industry is on course to match and exceed its 2019 value by 2024. It also presents businesses with the obvious fact that the country is beginning to recover from COVID-19, especially the hospitality and leisure industries which were some of the hardest hit.

However, dining out is not the only area which is expecting to see a continuing boom in business this year. UK staycations (domestic tourism) are set to also experience continued growth throughout 2022 when compared with 2021. A report undertaken in September 2021 found that 83% of domestic tourists hoped to enjoy a UK holiday again in 2022 with 24% having already booked a holiday for this year7.

All in all, the overall market value of UK tourism and hospitality may not have fully recovered to pre-pandemic levels, but all forecasts showcase the following two positive trends:
1. The domestic hospitality market is growing year on year and doing so in an economical and profitable manner.
2. It is forecast to exceed pre-COVID value in the coming years.

These are two huge positives which businesses should aim to focus on, with the market increasing so too will the demand for companies offering services within the industry. We at Alliance Online have seen the impact the pandemic has had on the industry for the last two years and appreciate the energy cost increases, inflation and other setbacks can be intimidating for businesses.

However, the various reports and forecasts that have been produced in quarter one of 2022 are promising for the hospitality sector, 2022 should see growth for the industry.

References
1. Office for National Statistics – Consumer Price Inflation, UK: February 2022: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/february2022#:~:text=historic%20modelled%20estimates.-,The%20Consumer%20Prices%20Index%20(CPI)%20rose%20by%206.2%25%20in,when%20it%20stood%20at%207.1%25
2. Office of as and Electricity Markets – Price cap to increase by £693 from April: https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april
3. The Money Edit – October 2022 energy price cap now expected to rise by 32%: https://www.themoneyedit.com/household-bills/energy/october-energy-price-cap
4. Armstrong Watson – Changes to Hospitality VAT Rates: https://www.armstrongwatson.co.uk/news/2022/02/changes-hospitality-vat-rates
5. GOV.UK – Business rates guidance: 2022/23 Retail, Hospitality and Leisure Relief Scheme: https://www.gov.uk/government/publications/business-rates-guidance-202223-retail-hospitality-and-leisure-relief-scheme
6. IGD – Recovery of the eating out sector to slow: https://retailanalysis.igd.com/news/news-article/t/recovery-of-the-eating-out-sector-to-slow/i/29563
7. Travel Weekly – Staycation boom ‘to continue into 2022’: https://travelweekly.co.uk/news/tourism/staycation-boom-to-continue-into-2022