Hospitality industry faces severe challenges after budget changes

Rising costs and wage increases threaten the future of hospitality businesses.

Hospitality industry faces severe challenges after budget changes

The hospitality sector is grappling with significant challenges following the recent budget announcements by Chancellor Rachel Reeves. Allan Henderson, the chief of The McGinty’s Group, has voiced strong concerns about the implications of rising National Insurance contributions and an increase in the minimum wage. These changes are seen as a “hammer blow” to an industry still recovering from the impacts of the Covid-19 pandemic.

Double whammy for hospitality businesses

As the hospitality industry strives to regain its footing, the new financial burdens could prove devastating. Henderson emphasized that the sector is already under pressure from increased bank rates and soaring energy costs. With the minimum wage set to rise from £11.44 to £12.21 and National Insurance contributions increasing to 15%, many businesses are left wondering how they will absorb these costs without passing them onto customers.

“It’s an absolute nonsense to say you are chasing growth and then hammer the businesses that create the growth,” Henderson stated, highlighting the paradox of government policies that seem to stifle rather than support economic recovery.

Impact on employment and service quality

With rising operational costs, many hospitality businesses may be forced to make difficult decisions regarding staffing and service hours. Henderson noted that businesses might have to consider reducing staff or altering their opening hours to manage the financial strain. This is particularly concerning for labor-intensive sectors like hospitality, where customer expectations for quality service are high.

Stephen Leckie, CEO of the Crieff Hydro Family of Hotels, echoed these sentiments, revealing that the tax increases could cost his business over £1 million annually. He expressed a commitment to investing in his business but acknowledged that the financial landscape is becoming increasingly challenging.

Calls for government support

Industry leaders are urging the Scottish Government to implement measures similar to the UK Government’s business rates relief for eligible sectors. Leckie pointed out that there is a limit to how much businesses can charge customers, and raising prices is not a viable solution for everyone.

Marina Huggett, from Achnagairn Estate, raised concerns about the cumulative effect of these new costs, predicting a potential 10% increase in operational expenses. She questioned whether the government’s approach would genuinely foster a dynamic economy or merely add to the financial burdens faced by businesses.

As the hospitality sector braces for these changes, the future remains uncertain. With the tourism visitor levy set to be introduced in 2026, industry leaders are left wondering how they can remain competitive and sustain their operations in an increasingly challenging environment.