Rachel Reeves will this weekend be told by some of Britain’s biggest hospitality groups that the tax hikes imposed in last month’s Budget risk triggering a tsunami of job losses across the sector.
Sky News has learnt that dozens of bosses from pub, restaurant and hotel operators have agreed to sign a letter to the chancellor calling her inaugural fiscal statement “regressive in [its] impact on lower earners” and warning that “business closures and job losses within a year” are inevitable.
The letter, an early draft of which has been seen by Sky News, has been circulated among executives from Stonegate Group, Britain’s biggest pubs operator; a division of the company which owns Wagamama; Burger King; the Hotel du Vin and Malmaison hotel chains; and Tossed, the high street salad bar operator.
One signatory cautioned this weekend that the contents of the final letter had yet to be finalised and could change.
Collectively, the signatories employ tens of thousands of people across Britain, although the final tally was unclear on Saturday as UK Hospitality, the trade body coordinating the letter, was still canvassing members about their willingness to put their names to it.
In the letter, they repeat a warning that steep increases in employers’ national insurance bills, coupled with the hike in the national living wage, will cost the hospitality industry close to £3.5bn annually.
They also say that the commercial viability of “important public sector catering contracts for schools, hospitals and prisons” will be thrown into question.
Ms Reeves said in the Budget that the Treasury would yield an extra £25bn annually from the employer NICs (national insurance contributions) increase, prompting a barrage of criticism from retailers and hospitality companies which have large numbers of part-time employees.
“The changes to the NICs threshold are not just unsustainable for our businesses but inevitably regressive in their impact on lower earners,” this weekend’s letter is expected to say.
“Unquestionably they will lead to business closures and job losses within a year.
“The increase in employer contributions would have been damaging enough but changing the threshold is far more damaging.
“Without action, many businesses will fail, costing many of the sector’s 3.5 million jobs.”
Among other potential signatories to the letter are said to be Pizza Hut’s largest UK franchisee, Oakman Inns, Tortilla Mexican Grill, Fuller’s and Elior UK, the contract catering giant.
The Revel Collective, which recently changed its name from Revolution Bars Group, is also among those asked to sign it.
The letter calls on the chancellor to create a new employer NICs band of 5% for workers earning between £5,000 – the new lower tax threshold – and £9,100, and to exempt employers from paying NICs on lower-band taxpayers who work fewer than 20 hours a week.
It also asks for an early implementation of business rates reform, or for the Treasury to reverse the temporary increase in VAT from 17.5% to 20%.
“Your stated intent is to rebalance the tax burden away from high street businesses, yet this change to NICs does the opposite, balancing the books on the backs of the high street businesses which provide jobs to all in society, nationwide, while sparing businesses that used technology to shed jobs,” the draft said.
“We understand that these proposals come at a financial cost, but we are absolutely firm in our belief that the business closures and job losses that would result from inaction would be substantially more expensive, for the economy, for society and for the public finances.”
Sky News revealed this week that some of Britain’s biggest food retailers believed that price rises from next April, when the tax changes come into effect, were inevitable.
Executives at Marks & Spencer and J Sainsbury both subsequently confirmed that possibility when they reported financial results to the City, while Tim Martin, the veteran chairman of JD Wetherspoon, said: “All hospitality businesses, we believe, plan to increase prices as a result [of the Budget].”
Hospitality groups are understood to have told their respective trade association that they may be forced to pass on some of the higher taxes in price increases, although the draft letter also highlighted the belief that customers “are at the end of their ability to pay more”.
The pessimism which has engulfed parts of corporate Britain since the Budget has taken senior Labour figures by surprise, and has thrown into sharp relief the triumphalism expressed by the new government after last month’s International Investment Summit.
In an interview with Sky News last weekend, the chancellor said “businesses will now have to make a choice, whether they will absorb that [employer NICs increase] through efficiency and productivity gains, whether it will be through lower profits or perhaps through lower wage growth”.
Pointedly, she did not highlight the prospect of higher prices for consumers, with some bosses already publicly warning of a renewed spike in UK inflation next year.
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Sky News revealed on Monday that Jonathan Reynolds, the business secretary, had faced widespread anger from chief executives on a call to discuss the Budget.
Nick Mackenzie, the chief executive of Greene King, highlighted on the call that the increase in employers’ national insurance contributions would cause “a £20m shock” to the company, while Fullers’ Simon Emeny warned that it would be forced to halve annual investment from £60m to £30m as a result of increased cost pressures.
Rami Baitieh, the Morrisons chief executive, told Mr Reynolds that the Budget had exacerbated “an avalanche of costs” for businesses next year.
This weekend, UK Hospitality declined to comment on the draft letter.
