The UK hospitality sector is grappling with a significant increase in operational costs, leading to reduced staff hours and shorter opening times for restaurants and bars.

Bloomberg has quoted UKHospitality CEO Kate Nicholls as saying that the sector has experienced a £3.4bn rise in annual expenses.

This is primarily due to increased minimum wages and higher business rates, which are impacting restaurants and bars across the country.

From 1 April 2024, a new National Living Wage is to be implemented in the UK, which will increase the sector’s wage bill by £3.2bn. A further £224m will be added due to elevated business rates.

Bloomberg quoted Nicholls: “It is the perfect storm. You have got an awful lot of costs already hitting the business – energy, food waste, food inflation – and then you have got wage cap costs on top and tax increases in the form of business rates.”

The new UK National Living Wage has raised the hourly rate for adults by almost 10% to £11.44.

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Given that employment costs account for more than half of the operating costs in a sector heavily dependent on its workforce, the hike presents a significant challenge for businesses.

The Bank of England is monitoring the situation to determine if the higher wages will contribute to inflationary pressures, which could, in turn, delay any potential cuts to interest rates.

Nicholls emphasised the need for government intervention, suggesting reforms to business rates, a temporary reduction in employer National Insurance contributions and a cut in VAT to help businesses cope with the recent price increases.

According to the trade body, the rising costs have dampened confidence and investment within the sector, with the number of new licensed premises openings at a three-year low. Nicholls also noted a decline in the popularity of eating and drinking out, with the cost of living being a significant factor for people choosing to stay in.