Scotland’s hospitality operators will see their payroll costs increase by at least £2,500 per person annually following the Budget announcement by Chancellor Rachel Reeves earlier this week.
The decision in the Budget to raise National Insurance Contributions by 1.2% to 15% and at the same time lower the NI threshold to £5K, as well as raising the National Living Wage by 6.7% has dealt a body blow to businesses across the country with hospitality one of the worst affected and trying to manage a 10% rise in the cost of employment per person.
Analysis by UKHospitality shows that the employment tax measures will increase the cost of employing a full-time staff member by at least £2,500.
Kate Nicholls, Chief Executive of UKHospitality, said, “The new cost of employing core members of staff is eyewatering – an increase of at least £2,500 is far, far beyond what anyone’s worst case scenario was.
“The overwhelming feedback from the sector is that this is just not sustainable and will ultimately do real harm to our ability to support employment.
Stephen Montgomery spokesperson for the Scottish Hospitality Group, which represents the largest group of independent, family-owned hospitality businesses in Scotland, comments, “The budget was a blow to businesses across the country, but it is particularly concerning for the hospitality industry. It is estimated that the Chancellors plans will add 10% to operating costs and it could certainly cost jobs.
He explains, “The rise in National Insurance Contributions for employers at 1.2%, and the reduction from £9100 to £5000, will see most of our members paying an additional £160,000 a year and that’s before the 6.7% and 16% increase in the National Minimum Wage is included or the added costs implementing the Employment Rights Bill. For the larger businesses in our group, it will add millions. For instance a business with 700 employees will see an additional £1.6m of costs and a business with 1000 staff around £2.5m.”
“SHG cannot see how this budget addresses the Government’s ambitions of a “dynamic, modern and growing economy”. The effect on hospitality, a key sector to growing the economy, will be to stifle growth and investment, the very opposite of what has been promised”
“With £3.4billion in additional Barnett consequentials, the Scottish Government now has the funds available to make good on its commitment to support the hospitality sector and deliver an immediate reduction of the business rates poundage to 35p in the coming Holyrood budget.
“This is particularly the case given the Chancellor of the Exchequer has extended business rates relief for the hospitality sector in England and has also indicated the UK Government will reform the entire business rates system from 2026.
“Reducing the business rates poundage to 35p in the Holyrood budget would help the hospitality sector to boost economic growth, create jobs and support Scotland’s communities and high streets, while also ending the inherent unfairness that sees hospitality businesses taxed at a higher rate than retail businesses.”
Kate Nicholls, Chief Executive of UKHospitality, said: “This Budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
“In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.”