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Fragile business confidence and soaring costs bolster case for Budget support


Confidence among the leaders of Britain’s top hospitality businesses has been beaten down by severe cost pressures, the latest edition of the Business Confidence Survey reveals.


The exclusive poll by CGA by NIQ shows 41% of leaders currently feel confident about the hospitality market over the next 12 months—down by eight percentage points from October’s figure of 49%. The proportion of leaders who feel optimistic about prospects for their own business in the next year has also fallen, from 62% in October to 57% now.


It brings to an abrupt end four successive quarters of growth in confidence, and emphasises the fragility of the hospitality sector in the wake of COVID-19 and the inflation crisis. The Business Confidence Survey found 9% of leaders believe their business is at risk of failure in 2024—four percentage points more than in October. One in 10 (10%) says their company currently has no cash reserves to draw on.


The research from CGA by NIQ highlights the cost challenges besieging hospitality. The large majority of leaders say their wage costs increased (36%) or significantly increased (62%) in 2023, and the same total say food, drink and other bought-in costs rose (48%) or significantly rose (50%). Many leaders also reported increases in energy (81%), insurance (80%) and rent (47%).

 

Energy and pay costs jumped by averages of 34% and 10% respectively in 2023, the survey shows. Respondents report average vacancy rates of10%, and a combination of shortages and a planned increase in the National Living Wage will add more pressure to pay this year.


With the Chancellor’s Budget approaching on 6 March, business leaders and industry bodies are now calling for support from government on a range of pressures. Nearly all leaders surveyed by CGA by NIQ say they are concerned to some extent by National Living Wage increases (99%), business rates (95%), food and drink cost inflation (98%), interest rates (84%) and VAT (84%), and their top three priorities for support are a cut in VAT for hospitality, full reform of business rates and a permanent lowering of the business rates multiplier.


Concerns for the immediate future of hospitality are echoed in other research from CGA by NIQ. The Hospitality Market Monitor with AlixPartners recorded net closures of nearly 3,000 licensed premises in 2023—equivalent to more than eight failures a day—while the CGA RSM Hospitality Business Tracker showed leading hospitality groups achieved year-on-year sales growth of just 0.1% in January.


Karl Chessell, director, CGA by NIQ said: “Hospitality is a resilient and resourceful sector, but the years of COVID restrictions and high inflation have taken a major toll. This survey shows how confidence, profit margins and reserves have all been eroded, and many operators, especially smaller ones, are now extremely vulnerable. Costs of doing business have soared in every area, and the case for targeted government intervention is now clear and urgent. Without relief on tax, rates and the impact of inflation on key inputs, more businesses will be sent to the wall. Hospitality can kickstart the UK’s recovery from recession, but only with the right support.”


Kate Nicholls, chief executive of UKHospitality, said: “This knock to business confidence, no doubt underpinned by the relentless cost pressures operators are facing, is a yet another demonstration of why the Government must take action in next month's Budget.


“It’s clear from these results that hospitality is united behind our asks of the Government to lower VAT for the sector and to address looming businesses rates increases.


“We’re continuing to make representations on behalf of the sector at the highest levels of Government and I hope the Chancellor acts on 6 March.”

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