I was off to a new restaurant over the weekend in an effort to beat the January blues. This must be the quietest weekend of the year for hospitality, so a good time to get a table and sneak in a pram. But the restaurant was not quiet at all – by the look of it, its neighbours were doing pretty well, too.
London’s dining scene is clearly so vibrant and exciting that even an icy, post-Christmas weekend will not deter the crowds from venturing in for a bite. Nor the spike in prices. High-end places can get away with charging £20 for a plate of tomatoes and £38 for some parma ham and melon.
But a busy restaurant does not mean things are prosperous behind the scenes. Major headwinds in recent years have meant that even places that are constantly packed are struggling. The decline of Britain’s town centres, a cost of living crisis, a post-Brexit shortage of staff and soaring costs have put huge pressure on the sector.
New tax hikes could be the tipping point which makes this the worst year for restaurants ever. The Centre for Policy Studies has already warned that the next 12 months will be the most expensive on record for businesses reliant on low-wage workers, with the cost of employing a full-time staff member on minimum wage set to rise by £2,367 to more than £24,800 per person.
That is driven by the Chancellor’s decision to increase employer National Insurance contributions from April, in addition to an inflation-busting rise in minimum wage.
The pandemic was apocalyptic for the industry but the scale of the Government bailout meant many survived. As one industry veteran tells The Telegraph: “We could see more restaurant business losses this year than in 2020.”
That would be a disaster for the high street. The soaring costs of food, gas, electricity, rent and labour have already driven many into insolvency. More than one in 10 British restaurants are at imminent risk of closure, accounting firm Price Bailey warned in November. The Budget tax raid means that cash-strapped eateries will be looking to reduce headcount.
That is despite recent staff shortages that left some restaurants so desperate for workers that bosses caught competitors hanging around smoking areas in an attempt to convince employees on cigarette breaks to switch jobs.
Those who already run a skeleton team will have to cut costs elsewhere. The number of workers in pubs, restaurants and hotels has fallen by 90,000 since the Tories increased the minimum wage by 10pc last year, Andrew Wishart, the Berenberg Bank economist, flagged last month.
Michael Kill, chief executive of the Night Time Industries Association, believes more managers will have to pull pints and take deliveries this year as “headcount rotas [will be] scrutinised further” and staff who work shifts and are paid hourly will get cut first.
All of this will impact younger, more inexperienced job hunters who typically go for these flexible, low-wage hospitality jobs. There’s already a concern that the workers’ rights overhaul being championed by Angela Rayner, which includes full employment rights from day one in a job and a crackdown on zero-hour contracts, could spook some employers from taking a punt on those with less experience.
The Federation of Small Businesses (FSB) will warn on Monday that 92pc of small employers are worried about the Government’s Employment Rights Bill, with 67pc saying they plan to recruit fewer employees and 32pc preparing to reduce headcount. Tina McKenzie, FSB’s policy chair, argues that “if employers fear they will be sued, fewer will hire”. For restaurants that rely on young staff to wait tables, the impact of such changes will be felt fast.
Restaurant bosses have been warning the Government not to jack up their costs for months, pointing out how difficult it was to make money even before Rachel Reeves’s first Budget. Ed McIlroy, the chef behind much-hyped London hotspots The Plimsoll and Tollington’s, noted in September how the former is well-established but “doesn’t make huge profits”, while the latter “won’t be successful unless we’re doing those numbers in two years’ time”.
Kate Austen, the former head chef of two-Michelin-star AOC in Copenhagen, who became the first woman to win the main course round on BBC’s Great British Menu last year, has chosen to work as a private chef instead of setting up on her own as she said her friends who owned restaurants were “all struggling”.
Well-known spots to have closed in recent months include Leroy and Pidgin, both in east London and once Michelin-starred. And the well-connected Boglione family behind the Petersham Nurseries brand are braced for crunch talks over the future of two restaurants in London’s Covent Garden.
Tom Kerridge, the celebrity chef, warned after the Budget that the National Insurance rise would cause a “huge amount” of pub and restaurant closures, cautioning that the Christmas period would “give a false sense of feeling that everything is ok” at a busy time. Now the festive period is over, the harsh reality is becoming clear. Eating out might be firmly on the menu but the costs do not add up.
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