After Brexit and the pandemic, could energy prices be the straw that breaks the camel’s back for tourism and hospitality businesses?

The world is full of tipping points. For years at a time we grumble at small changes that each make life a little more challenging but which leave things broadly unchanged.

Then, almost overnight, the cumulative affect can become more than the system can cope with and something catastrophic happens. The final one is often called “the straw that broke the camel’s back”. 

A challenging time for the tourism and hospitality sector

As tourism and hospitality specialists, the team at Thomas Westcott saw many businesses for whom Covid was that straw. Perhaps, though, describing it as “one straw” is understating such a massive event. However, through the use of grants, furlough, special schemes and reduced VAT rates many of our clients had a torrid 18 months but are still around to tell the tale. The help we gave as accountants in implementing those saviours is something of which Thomas Westcott are rightly proud.

The return to normality has been slower and more painful than we would have liked, but customers are spending money again and everyone is busy adapting. Some of the adaptations that Thomas Westcott have helped our clients implement include:

  • Price rises (or at least fewer special offers)
  • Switching to higher margin offerings
  • A move away from table linen
  • Finding savings whenever possible

Brexit and staff shortages

Of course, Covid has come on the back of Brexit and staff shortages have hit hospitality very hard indeed. As accountants, we operate payroll for large numbers of tourism businesses. Our experience clearly shows that the media is not misrepresenting the reduction in the pool of overseas workers. That has led to pressure for wage increases and made the above coping strategies all the more important.

The Health and Social Care Levy is expected to come into force next April. Therefore, the Tourism and Hospitality sector also now needs to factor in an extra 1.25% charge on wages to be collected via National Insurance. I have seen various suggestions as to how this can be avoided but they all have possibly detrimental effects on what are already seen as challenging working conditions.

And then, on top of these issues we get a massive increase in energy costs.

Rising energy costs

For some in this sector, direct energy costs may not be a significant proportion of overall costs but they are certainly another straw.  For others, this could be a straw of haystack sized proportions. 

It may well be that energy costs will not be the final straw in and of themselves. To some extent they are a symptom of a wider issue that is indicated by rising prices and rising wages – namely, that of inflation. 

For most of the current population, inflation has largely become a part of history. It is something known about in general terms but without much first-hand knowledge of its impacts. The most likely of these are going to be upwards pressure on interest rates and reduced cash in the hands of the public, especially for discretionary spending.

Energy costs may not be that final straw in themselves. However, they are potentially a “straw in the wind” pointing to harder times ahead.

At Thomas Westcott Chartered Accountants we’re here for our clients – By Your Side, On Your Side. If you would like to discuss profit strategies, National Insurance mitigation or inflation proofing your business, please contact me or your local Thomas Westcott office.

By Stuart Carrington, Partner