The last number of years have seen a series of increasing costs for all small and medium sized businesses in the UK and Ireland and many economic factors continue to cause challenges particularly for the hospitality and catering industry. While some are easing into 2024, others remain of concern. So what are the factors that the industry will need to consider as businesses get ready for their busy seasons in 2024? Whether the business is looking to diversify, grow, invest, or simply maintain the status quo, here we look at the factors that will have the biggest impacts.
Cost of Labour: Cost of labour recurs as one of the most significant costs in hospitality. This will increase in 2024 and in foreseeable years, as workers in the UK will see wage increases depending on their age from 01 April. From this date, workers aged 21 and over will be entitled to the National Living Wage of £11.44 per hour. This is a rise of £1.26 per hour for those aged 21-22, and a rise of £1.02 for those aged over 23. Those aged under 18 and aged 18 to 20 will also see rises in their minimum hourly rates to £6.40 and £8.60 an hour respectively. Those employing apprentices at the current £5.28 rates will also be affected, with apprentices’ hourly rates rising to £6.40 per hour.
Similarly in Ireland, the National Living Wage increased on 1 January 2024. The national minimum hourly rate becomes €12.70. This rate applies to employees aged 20 years and above. Sub-minimum hourly rates apply to employees aged under 20. These rates are €11.43 for those aged 19, €10.16 for 18-year-olds, and €8.89 if aged under 18.
Sick Leave: As part of a 4-year plan, the Irish government is gradually increasing employer-paid sick leave which will rise to 10 days in 2026. As part of this plan, the entitlement to paid sick leave recently increased from 3 to 5 days for employees. While this measure aims to provide protection and certainty to employees who are unable to work due to illness or injury, the government recognises that the overall cost of doing business is of concern particularly for small businesses. As part of targeted measures to support businesses, the increased Cost of Business Scheme announced in Budget 2024 provides direct financial support to small businesses directly impacted by increased costs. The scheme includes a once-off grant which will benefit up to 130,000 small and medium businesses from a fund of €250m.
In the UK, employers without a company sick pay scheme should pay Statutory Sick Pay (SSP) to eligible employees. This is £109.40 per week and paid by the employer for up to 28 weeks.
Energy costs and geopolitical factors: Businesses and households alike were hit by soaring energy prices after the Russian invasion of Ukraine in February 2022. In the UK the Energy Bills Discount Scheme runs until March 2024. However this has been most beneficial to heavy energy-using sectors, particularly manufacturing. In addition, recent research has suggested that over half of SMEs were unaware of the financial support it provides and therefore have not availed of potential savings.
Across Europe, while many predict energy prices may drop in 2024, they are unlikely to fall to pre-invasion levels.
Events affecting shipping in the Red Sea and recent drought in the Panama Canal have the potential to affect the price of global raw materials and cereals, as rerouting options mean more time and cost. These have not materialised into significant additional costs for businesses at the end of distribution chains as yet, but it remains to be seen if this happens should these events continue long term.
Inflation: Inflation in the UK stalled at 4% in January, having fallen significantly during 2023. While this is some good news for the hospitality sector in that this is a long way from the 10.4% rate just a year ago, it may not stay at this rate. Many analysts believe it may well hit the Bank of England’s 2% target later this year but that may not last if as expected, energy prices continue to fluctuate.
Similarly in Ireland, the inflation rate is currently 4.1%. this is a drop of 0.5% on the previous month. Hospitality however had one of the most significant price growths in the 12 months to January. This is no surprise as multiple factors are contributing to the challenge of doing business in this sector. According to the Restaurants Association of Ireland (RAI), this includes low margins, rising costs and the housing crisis. Among costs, the RAI points to increasing PRSI rates which will increase by 0.1% in October, and the VAT rate which returned to 13.5% last September.
Looking for ways to reduce costs in your hospitality or catering business? Find out more here.
