It just keeps getting bigger…

There are many things in my life I wish would increase in size, but regrettably, in recent years, it is solely my waistline and now VAT that seem determined to grow exponentially.  A lesser writer would segue into said VAT question with a gutter pun about getting fiscal. Of course, I am not he, but I wanted to put pen to paper on the reality of the wider economic decisions that will rock the hospitality industry.  And not in the sense of a Queen gig, more a repeated financial stoning. 

20% VAT has never been sustainable.  We are towards the top of European approaches in our VAT levy on hospitality, and it is a battle that has been waged from way beyond the first cough of COVID.  On food sales, France is 10%, Spain 10%, Poland 8%, Italy 10 %, you get the picture.  Obviously, we all hate Europe now, but our recently divorced neighbours typically take a more progressive approach to taxation.  Hospitality has always been a chest from which red briefcase wankers have gladly pillaged in this country.  

Great efforts have been made by numerous organisations, individuals, and chefs to protect the industry from the oncoming tidal wave of fiscal pressures.  Locally and most recently, Andreas over at Simpson’s asked me and many others to sign a letter in collaboration with Birmingham Chamber of Commerce to plead with the Treasury.  There is no movement to date. I suspect no movement coming. 

Recent reports on the economic recovery have bolstered the government’s economic position and our recovery from the dip arising from COVID has, indeed, been stronger than elsewhere in Europe.  In a recent FT column however, Chris Giles (a fella far better and smarter than I) argued that the recovery should be tempered with a reasonable expectation that given that we’ve experienced the worst crash in GDP, a similarly aggressive move to the upside is not inherently an indicator of strength.  There is still much to cause concern, not least a 9%+ crash in the service industry (that’s us) in December, an unresolved energy crisis exacerbated by tensions in Eastern Europe, and unemployment rates that don’t inspire me to wank myself off with a Union Jack flag just yet.   I need to be clear Giles made no reference to wanking, that’s my twist on it. So to speak. 

The problem is we are facing two distinct economic problems, and the government is incredibly keen to homogenise this into COVID.  The impact of Brexit is real and, for our business, more detrimental than COVID.  We have an administration who led Brexit and will do nothing to acknowledge the complex and ever-changing nature of this new arrangement. Off-record and behind closed doors, politicos close to the cabinet have told me that a VAT reduction wouldn’t tally with the political PR around the economy, and that alone is reason enough for us to remain right royally fucked.  You’d think Downing Street’s desire to celebrate would be tempered by all the parties they packed in during that lockdown, but apparently the party line is self-celebratory.

Our energy costs are up almost 100%, our ingredients are up 75 – 80% on an annual basis and alongside VAT, there is an increase in NI contributions – damning both employees and employers at once.  Restaurants are all unique businesses, but most of us operate on a 10 – 20% net profit basis.  It taketh not an Etonian education to understand that this is not an equation that balances comfortably.  This ignores, of course, at least three years (for our business) of servicing financing/loans/deferments we used to survive COVID.  It is an incredibly hard financial equation that, I fear, many will not solve.  It is the sudoku of your nightmares.

The only real option available will be, I suspect, to pass the real cost of operating business on to consumers or go horribly bankrupt.   Several of my peers running fine-dining restaurants are now looking at significant increases for their menu pricing to ensure their survival.  We’ve had to have difficult discussions ourselves.

For the mid-market, which I suspect is even more economically driven, I do not know what they do. You could go after increased volume of guests, but that relies on either (a) increased marketing spend to acquire this volume or (b) city centres to recover to pre-pandemic levels.  The latest data for the Midlands puts train travel into the city at sub 60% of pre-pandemic.  Will you pay over £5 for a coffee?  Would you grab a casual lunch for £35+?  I suspect for many, who are juggling their own domestic challenge of a country at 5.5% inflation, the answer will, regrettably, be no.

We are on the brink – again – of hospitality taking a beating and each consecutive challenge weakens the defences, presents fewer options and, emotionally, wrings the last remaining drops of resilience.  We’ve accepted that margins will be hit, and I remind myself that I do it for the love of it, as I cry over spreadsheets in the darkest hours before dawn.  

You have to love what you do to be in this line of work, that much has always being true. But how far will love take you now?  I fear these coming months may demand we ask that question.  I write this to add my tiny little voice to the crowd as to the impossibility of present macro-economic policy.  I write to speak to other operators and remind them we’re all in the same boat.  There will not be any singular way in which businesses attempt to navigate these stormy waters, nor should it be a race to the end of the rapids – collective action and support is the surest way to ensure everyone survives.  Finally, we are a sector that exists for guests, a people business in the most visceral sense of the word. Change is inevitable, but I sense the changes ahead for the industry may not necessarily be the easiest or the most palatable for those we serve in the coming months. I write to ask you, gentle reader, to be mindful of the scale of challenge ahead.