Bob Cotton, Non-executive Director of IndiCater, examines the likely impact Brexit will have on the hospitality industry and the steps shrewd businesses should take to protect themselves from its consequences
Brexit is now underway, although few in the hospitality industry will have yet noticed as we are enjoying something of an Indian summer. Incoming tourism is up, helped by the weak pound, which also encourages more people to holiday at home. Consumer spend is holding up, and reality is some way around the corner – but not for long.
By far the biggest challenge facing the industry once Brexit negotiations are underway is the issue of migrant labour. Hospitality employs well over 500,000 migrant workers; nearly 70 per cent of hospitality workers in London were born overseas. We need to recruit some 525,000 people by 2020 according to People 1st, of which up to half, under present arrangements, would be migrant workers.
But what happens once Brexit is negotiated? The UK economy, particularly sectors such as the NHS and care homes, agriculture and hospitality, is far too dependent on overseas workers for those already here to be shipped out of the country.
Promises are being made that will not happen, but even to survive hospitality will need a regular supply of migrant workers to replace leavers, retirees and to create growth. How many, and under what conditions, is up to the negotiations.
A system of work permits seems inevitable, with numbers strictly limited, and it is not an inviting prospect. Whatever number is finally agreed, it will not be enough. Added to this, is the increase in the National Living Wage to £9 per hour by 2020 – an increase in each worker’s wages of £63 over today’s rate for a full working week. That’s a staggering increase in the industry’s payroll bill. There has been surprisingly little comment on this by industry leaders. Of course, any reduction in the availability of migrant workers because of Brexit, will only exacerbate the problem. At present, the ready availability of EU workers is keeping wages down. With fewer migrant workers available, wage rates will inevitably rise. And if wage rates continue to rise, insolvencies will follow, as businesses find they cannot remain profitable.
With payroll already the biggest, single cost item for any hospitality business – up to (and beyond) 40 per cent in many cases – the pressure should already be focussed on controlling the wage bill through better training, higher productivity, better organisation of work rosters, better control systems and, ultimately, fewer staff. Without these changes many hospitality businesses will surely face closure.
The industry has to recognise that labour. For the next couple of years while it is being negotiated, employers have the opportunity to introduce ways of making their business more efficient, and they should take full advantage of it.
Ways need to be found to reduce wage costs. For example, few employers currently give much thought to keeping a worker on duty for an extra hour per shift. But at two shifts per day, at £9 per hour, doing just that will cost the industry over £6,500 per year – without including NI and other costs – which could become ruinously expensive.
In the era of higher wages that will come after Brexit, all costs will have to be far more closely monitored and controlled than is generally the custom today. In all but the smallest establishment, daily worksheets and accounts will be essential for analysis of key costs – particularly payroll, but also other essential costs such as food and energy. This demands systematically recording, monitoring and comparing against budget the business’s data so decisions can be made on a daily basis. Knowing you made a loss last month is useless – you need to know how the business is performing on a daily basis so you can take immediate action.
There are systems available that enable businesses to keep information up-to-date, providing instant access to make key management decisions. The wise business will make sure these are introduced before it is hit by the consequences of Brexit.