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Multiple smaller pub or hostel operators in the UK plan to close sites, cancel expansion investments or divert spending internationally after Rachel Reeves’ Budget left them facing higher employment costs.
Wells & Co, a Bedford-based brewer and pub operator, has cancelled a planned takeover deal and now plans to shift its entire acquisition budget for new sites to the French side of its business, chief executive Peter Wells told the Financial Times.
“We were working hard to bring an acquisition forward in the UK . . . with the bank being happy to help us up to £10mn,” he said. But the deal was now “on hold”, along with a UK-wide hiring freeze for the next 12 months, following the Budget.
The business, founded by his great-great-grandfather almost 150 years ago, has about £60mn of revenues. Its 150 UK pubs account for 80 per cent of its business, but the Budget measures would add an extra £700,000 on to its annual bills, slashing its profit by a fifth, Wells said.
The Budget last month raised taxes on business, with a jump in employers’ national insurance payments from 13.8 per cent to 15 per cent, and the threshold at which the levy kicks in almost halved to £5,000 from next April.
In addition, the minimum wage will increase 6.7 per cent to £12.21 per hour, with larger increases for younger staff. The relief on business rates will also fall to 40 per cent from 75 per cent, meaning the rates bills of hundreds of thousands of businesses will more than double.
The measures have pushed several smaller hospitality operators to seek options outside the UK, several told the FT.
Beds & Bars, a backpacker hostel group in the UK and six European countries including France and Spain, is set to shut down some of its bars and pubs attached to the hostels in the UK, chief executive Luke Knowles said.
The company will also no longer push ahead with an expansion plan to add more beds to its UK properties, and instead allocate that money in the continental Europe, where the return on investment is already on average fourfold of that of the UK.
“Pre-Budget, we were already seeing better opportunities and better returns [in Europe],” said Knowles. “However, post-Budget, it now makes our businesses over here exceptionally marginal.”
He estimated that the Budget measures would force the company to pay nearly £500,000 more a year, wiping off 25 per cent off its core profitability. “The opportunities [in the UK] would be few and far between.”
Meanwhile Aim-listed hostel company Safestay said it was exploring moving half of its finance operations from London to Warsaw, where it has its group sales office. The operating cost would be half of what it was now in the UK, chair Larry Lipman said.
The rise in employer’s NI contributions and minimum wage would “drive us to enhance further activity outside of the UK”, Lipman added. “The UK is a difficult environment right now.”
Their moves come on top of warnings from industry-leading chief executives that the tax rises will lead to job losses and higher prices.
A survey on Wednesday from the British Institute of Innkeeping, a trade body for individuals working in pubs and the wider hospitality sector, found that new costs of employment and increases in business rates could lead to at least one in four independent pubs closing.
Last weekend, more than 200 leaders from the hospitality industry signed a letter to Reeves warning that small businesses were at risk of closure within a year.
