‘We can’t increase prices any more’: UK hospitality firms hit by cost triple blow | Hospitality industry

NIck Evans is staring in vain at columns of numbers, trying to make sure they add up to a profit. He co-owns the Old Crown Coaching Inn in Faringdon, Oxfordshire. This pub and hotel has a rich history, with its crooked wooden beams and plush easy chairs.

Oliver Cromwell stayed here in 1645. The room, believed to have been used by the notoriously harsh “hanging judge” Lord Jeffreys to condemn rebels, is now home to happier encounters: the honeymoon suite.

Evans, a former City trader, is no stranger to making a profit. But this is hospitality, an industry that has known nothing but sucker punches since the onset of Covid-19.

The latest blow to the industry is a triple whammy. Old Crown is one of thousands of hospitality businesses grappling with a significant increase in costs due to the increase in minimum wage and business rates that started from the beginning of April.

This is on top of the Iran crisis and the resulting surge in energy prices (oil and gas are still well above pre-war levels despite the drop following the overnight announcement of a two-week ceasefire), which will increase the cost of buying supplies and keeping guests warm. Those same customers themselves are poised to make an impact on their disposable income, meaning they’re less likely to push the boat.

“The only way to make this work is to have a microwave oven and staff who can open a package and put it on a plate,” says Evans. “That’s not why we got into this industry,” he says, looking at his co-investor Mike Webb, a City retiree.

The couple bought the business shortly after the pandemic for £625,000 and spent a similar amount transforming it into the charming bed and breakfast it is today. They own the freehold and also lease two other pubs from the Greene King brewery.

At the Crown, they want to open six more rooms to reach 20, a project that will set them back another £350,000. “This will allow us to grow and will also create jobs for taxpayer-paying construction workers, carpet fitters and handymen in the area.” But Evans says everyone in the industry has stopped investing.

Under these conditions, this plan will not be possible. A rough version of Webb’s accounting spreadsheet, drawn with a ballpoint pen, explains why.

Total annual income, including VAT, was around £1.4 million, down from £440,000 when they took office. The cost of the drinks served at the bar and the ingredients the head chef turns into appetizing dishes is around £430,000 and rising.

As beef prices for pub steaks soar, beer and wine merchants are also asking for more. To create a sustainable margin, the bar will need to charge prices customers won’t pay.

“Diageo is about to upgrade Guinness, so a pint should cost closer to £8,” says Evans. “We can’t raise our prices any further before people come.”

Water bills add another £20,000 to the annual costs column, while laundry, cleaning and maintenance are around £100,000, with a similar sum going towards rent and insurance.

Then there’s the looming specter of rising energy bills. Energy consultancy Cornwall Insight said some firms risk being stuck with high-priced energy deals if they renew at the wrong time, while others may not get a fixed-rate deal.

Energy regulator Ofgem has written to suppliers and brokers reminding them to “treat their customers fairly”, but UK Head of Hospitality Kate Nicholls has predicted the sector could be “hurling towards another energy crisis”.

Crown’s annual gas and electricity bill is around £80,000 and the supply contract is due to be renewed in July. Evans says a significant increase of several thousand pounds a year is possible if a solution is not found in Iran.

Even after all this, the business still makes a small trading profit. But then £234,000 of VAT would have to be paid. Hospitality businesses in the UK pay much higher rates than their counterparts in European countries; this is a persistent complaint expressed by tens of thousands of companies in the industry. An additional £45,000 in national insurance contributions is helping to make matters worse.

Nearly every line on the cost and tax side of the balance sheet is increasing, mostly due to geopolitical circumstances beyond anyone’s control. But these two increases as of last week are the result of the government’s desperate policies to raise tax revenues to spend on crumbling public services and state support for those most in need.

Crown’s wage bill is around £350,000, but this will rise to around £370,000 with minimum wage increases come payday later this month. It comes on top of an increase in employers’ national insurance contributions that was part of the chancellor’s first budget in 2024, which opponents describe as a jobs tax.

Evans says he is not a “Scrooge” and supports higher wages. But given the pressure on the sector, he says the inevitable impact will be felt most by young people, and especially women, many of whom are already struggling to find work.

“You run the risk of pricing young people out of the market,” he says, referring specifically to increases in the wage base for under-21s.

“We take 16-year-olds who know social media and doomscroll all day long but are shy and don’t like to pick up the phone when it comes to talking to a customer. We build them from ground zero into well-rounded individuals. But now I might as well hire an adult for a pound more.”

He argues that the national insurance change is inherently misogynistic because it discourages employers from hiring part-time workers, mostly mothers, looking for extra income. “We’re looking for full-time people because otherwise I’m paying quadruple the extra contribution when I could pay it once.”

There is also an increase in business rates across the sector, which also started on April 1. Bars are entitled to a 15% discount and a two-year freeze. But while the vast majority of people ducking to avoid headbutting the Crown’s low doorways are here for a pint, the fact that the place has 14 rooms means it’s classed as a hotel and doesn’t get the money.

That means another £24,000 bill, no profits and rising costs even as consumers rein in their spending to reflect turbulent times.

“We can’t run a business with 20 people if we lose money. We have to say let’s go live in Spain, we don’t need this nonsense anymore,” says Evans.

UK Hospitality’s Nicholls says that’s exactly how many businesses would think; a recent survey shows one in five fear they will not survive the next 12 months.

“Our bars, restaurants, cafes and hotels cannot afford any more costs, so the increases will be passed on to the consumer, increasing inflation and hitting employment,” he says. “For some, this will be the final nail in the coffin and they will have to close down completely, as many have done recently.”

Retirement to Spain has been suspended at Crown for now. Instead, Evans and Webb go on to phone HMRC and beg the tax collector to agree a more lenient payment plan for their VAT bills. “It’s been a struggle,” says Evans. “Hard, difficult, difficult.”