Would many publicans have a drink with Sir Keir Starmer?
Hospitality has been in a serious huff with the UK Government since Ms Reeves announced whopping hikes in employer national insurance contributions, the national living wage, and the national minimum wage in the Autumn Budget.
It warned at the time that the rise in labour costs, which according to UKHospitality will amount to a £3 billion rise in the industry's annual wage bill, would have a huge effect on jobs, growth, and investment. Now it appears those fears, which have been shared by other sectors such as retail, are beginning to be realised. Publicans are unlikely to glean any satisfaction from being able to say, 'I told you so'.
A new analysis published by top 30 accountancy firm Price Bailey this week found that pub insolvencies surged in April - the month the increases in employer NICs and pay rates took effect - to the highest monthly total since last summer. The analysis found 67 pubs went out of business in April, the highest tally since July 2024 when 75 entered insolvency.
The growing cost pressures on the industry have had an impact on consumers too, as the average price of a pint has steadily risen. The British Beer & Pub Association (BBPA) recently warned the average price of a pint would increase by as much as 21p as a result of the changes announced at the Autumn Budget, taking the average price from £4.80 to £5.01 (though in major cities the average price is significantly higher). The Office for National Statistics also tracks the average price of a draught pint and its most recent figures put the cost at 483p in January, following years of steady increases.
After signs that the number of pubs entering insolvency had peaked in 2024 and was in decline by the end of that year and into the first quarter of 2025, Price Bailey said the number of pub insolvencies is ticking upwards again.
'The early signs are that the tax and minimum wage hikes which took effect in April are already tipping some struggling pubs over the edge,' said Matt Howard, head of the insolvency and recovery team at Price Bailey.
'It was widely believed that pub businesses would initially find ways to absorb the additional payroll costs and that the full impact would only be felt much later in the year. That the impact has been so immediate shows that many pubs had already exhausted their financial buffers.'
Mr Howard added: 'April's sharp rise in inflation, driven in part by rising energy costs, is adding to the misery of many publicans. One in five pubs are technically insolvent, and while it is possible to keep trading and salvage the situation, being hit with sharp payroll and energy price rises will prove too much for many of them.'
The Price Bailey report came shortly before a survey published by UKHospitality, The British Institute of Innkeeping, the BBPA, and Hospitality Ulster on June 2 revealed that one-third of hospitality businesses are now operating at a loss. This was an 11 percentage point increase on the previous quarter.
The survey also found that six in 10 operators have had to cut jobs amid the "devastating" impact of April's cost hikes, while 63% have reduced the hours available to staff as the industry has taken steps to mitigate the higher overheads.
But signs of distress in the economy are not limited to hospitality. New research from R3, the UK insolvency and restructuring trade body, found insolvency-related activity hit a 29-month high in May as businesses faced challenges on a raft of fronts.
R3 highlighted the hikes in employer NICs and national living and minimum wage among a host of factors that are weighing on businesses as its analysis found there were 141 cases of insolvency-related activity – including administrator and liquidator appointments with creditors' meetings – in Scotland in May. This was the highest number since the December 2022 figure of 142, and 30.6% up on April's 108.
'We have seen a substantial rise in insolvency-related activity in Scotland since the start of the year, but last month's rise to the highest point in more than two years is a reminder of just how tough trading conditions are,' declared Tim Cooper, immediate past president of R3 and a partner at law firm Addleshaw Goddard. 'Levels are now higher than they were for much of 2023 and for 2024, when many businesses were grappling with the aftermath of Covid and the impact of the cost of living crisis.
'A number of factors are likely contributing to the increase we're seeing, including a rise in MVLs (members' voluntary liquidations) from directors choosing to close their businesses in response to recent tax and policy changes, such as the increases to employers' national insurance and the minimum wage.
'We are also seeing a rise in winding up petitions as creditors take the lead from HMRC, which has become increasingly more willing to chase the debts it is owed. HMRC's more assertive stance seems to be influencing other creditors to follow suit, particularly where there are signs of persistent non-payment.
'This increase in insolvency-related activity also reflects the wider economic picture in Scotland. Business activity remains subdued, and firms continue to face persistent cost pressures, higher tax obligations, and weak demand. For some, the combination of these pressures is tipping already fragile businesses into formal insolvency processes.'
Clearly, these are worrying times for businesses across a range of sectors and, for a UK Government that has made growth its top priority, it is showing little sign of delivering the kind of conditions in which business can thrive.
The latest UK labour market review by the ONS, published on June 10, found the number of payrolled employees for May decreased by 109,000 on the month before. This was reportedly the largest monthly fall since the same period in 2020, amid the first Covid lockdown. The rate of unemployment was found to have increased to 4.6% in the three months to April, from 4.5% in the three months to March, reaching the highest level since the three months to July 2021. Pay growth also eased, the ONS found.
Moreover, official figures published last week found the UK economy went into reverse in April, as gross domestic product fell by 0.3% month on month. The decline was worse than the 0.1% expected by most economists, and Liz McKeown, director of economic statistics at the ONS, noted declining output in both the services and the manufacturing sectors in April.
While a modest contraction in GDP over a single month offers a limited window into the health of the UK economy, there is no doubt it took a little wind out of the sails of the Chancellor, who received some praise from the Scottish business community for the Government's Spending Review which she announced the day before. That included a thumbs-up from Scottish Chambers of Commerce on a range of measures, including a commitment to fund the Acorn carbon capture and storage project in Aberdeenshire, held up as the kind of initiative that will be key to Scotland's energy transition hopes. Scottish Chambers' chief executive Liz Cameron said Acorn had the potential to create 15,000 jobs in its construction and attract billions of pounds of private sector investment as she also welcomed a commitment to increase defence spending.
Although these funding commitments are clearly important, the Acorn Project and moves to hike defence expenditure will mean little to the many business owners who are struggling to keep the lights on as costs continue to rise and economic growth flatlines.
The sense that the UK Government is struggling to address the issues facing many businesses was summed up by the Scottish Hospitality Group and the Federation of Small Businesses in their responses to the Spending Review. Stephen Montgomery, director of the Scottish Hospitality Group, declared the review did 'absolutely nothing' to support the sector.
He said: 'Today we heard all about the spending plans, however nothing about helping those who will pay for it through taxes.
'To help the economy to grow, you need business to grow, so today we yet again see the sector let down by Rachel Reeves.'
The reaction was not much better from the FSB, which said the review left its members 'wondering when they will feel the benefits'.
If the business community were to write a report card for Sir Keir and Ms Reeves for the 11 months they have been in office, the verdict would surely not be anything more positive than 'could do better'.
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