Out-Law Analysis 4 min. read

UK hospitality industry faces mounting challenges

Empty cafe or bar interior, daytime

After years of pandemic-related turmoil the UK hospitality industry has recovered surprisingly well, but some issues still pose significant obstacles for operators.

Hospitality businesses have bounced back well since Covid-19 restrictions were lifted in the UK last year. Lockdowns were particularly difficult for hospitality operators, which is why it is so good to see UK tourism numbers rising again, as well as the resumption of large-scale sporting events across the country and planning relaxations for outdoor areas.

But UK hospitality and tourism remain under serious pressure. High energy costs, regulation, the continuing impact of Brexit on supply chains and employee recruitment and retention are all impacting on margins and, more importantly, on the health and wellbeing of operators and their employees.

Rising energy costs

Research published earlier this month – conducted on behalf of the UK’s major hospitality and tourism bodies – found less than a third (29%) of people running hospitality businesses were optimistic about the next 12 months. Nine out of 10 (86%) of respondents said they were ‘concerned’ or ‘very concerned’ about the current price of energy.

The study suggests that the average energy bill for hospitality businesses is now three times higher than it was in 2021. Half (46%) of respondents who had been forced to enter long-term fixed rate contracts at the height of the energy crisis last year told researchers that they believed their businesses were at risk of failure in the next 12 months.

The problem is perhaps most acute in Scotland, where – unlike in England and Wales – rates relief is not available for struggling businesses. Many in the hospitality industry have already called for the UK government to intervene, perhaps to require energy suppliers renegotiate the long-term fixed rate contacts that some businesses are currently struggling with. Others suggest that lawmakers and regulators should go even further and provide financial support to businesses that are most at risk.

Alcohol duty reform

From 1 August 2023, the UK’s alcohol duty will be reformed, removing some of the differentials in rates that existed between types of alcohol. This is arguably the biggest reform of duty for nearly half a century.

With the exception of products with an alcohol by volume (ABV) range of between 3.5% and 8.4%, the rate of duty to be paid will depend entirely on the alcoholic strength of the product, regardless of alcohol type. In the mid-strength range, the rates will depend on a combination of alcoholic strength and product type.

Drive for sustainability

Like almost all other industries, hospitality and tourism faces increasing pressures to be green – both from regulators and customers. According to a 2022 Booking.com report, 81% of overseas tourists said that traveling sustainably is important to them. To make the most of this, hotels and rental properties now need to consider more proactive and impactful sustainability strategies.

Some businesses are already re-examining their approach to water and energy conservation, as well as how to limit their reliance on single-use plastics and promote sustainable packaging for their guests.

Meanwhile, the Scottish Government recently announced that its deposit return scheme (DRS), initially scheduled to launch in March next year, would be delayed until October 2025 at the earliest. The recycling reform will place a 20p charge on drinks bottles and cans which can be redeemed by customers if they return the containers to ‘reverse vending machines’ operated in larger stores, shopping centres and community hubs.

The UK government approved a partial exemption to the Internal Market Act for the Scottish DRS last week, but insisted that glass bottles must be excluded, meaning that the scheme would only cover PET plastic, aluminium and steel cans. The Scottish government said the decision by UK ministers meant it could no longer give Scottish businesses the assurances they needed over how the DRS would operate.

The postponement is only the latest example of the challenges caused by divergent approaches to food and drink regulation on either side of the border. The announcement means that Scotland’s DRS is likely to closely resemble a parallel scheme being developed in England & Wales which has yet to be unveiled.

‘Martyn’s Law’ and the Terrorism (Protection of Premises) Bill

The draft Terrorism (Protection of Premises) Bill was published on 2 May 2023. Known as ‘Martyn’s Law’ in recognition of the campaign led by the mother of one of the victims of the Manchester Arena bombings, it would require those responsible for publicly accessible venues to take steps to reduce the threat to the public from terrorist attacks.

Currently, private sector organisations work with police to take steps to mitigate against terrorist risk on a voluntary basis. But the Bill would create a new scheme under which publicly accessible venues and events must put in place terrorism protection training, risk assessments and develop security plans to reduce risk. Venues with a capacity of 100 or over would be subject to a standard duty, while venues with a capacity of 800 or more, and qualifying public events, would be subject to an enhanced duty, with more stringent anti-terrorism requirements.

The Bill would also create a new regulator with powers to inspect and enforce the scheme. The regulator would be empowered to issue notices requiring the rectification of contraventions, or restricting the use of a venue in contravention. Compliance would be enforced through monetary and criminal penalties.

It is understandable why some operators are concerned about the practical effects that the draft legislation will have and the cost of compliance. On an already heavily regulated industry, yet more regulation will come as a challenge, particularly for those premises who are just above the lower threshold of public capacity of over 100, for the standard duty. This will include many pubs, restaurants and bars.

The Bill leaves many in the hospitality industry wondering why the threshold was set at 100, and whether it was a deliberate choice to include as many premises as possible – or simply ill-thought-out? Either way, the end result is that the standard duty will be far reaching and, for some businesses, it will be onerous.

Co-written by Hannah Burton and Kirsty Gallacher of Pinsent Masons.

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