How the Treasury is throttling business

Mark Derry of Brasserie Bar Co with Raymond Blanc, left

BRASSERIE BAR CO

Rishi Sunak says this is what he wants to do. But in the spring statement he did the opposite. There is an intellectual dishonesty in that which is quite bizarre. He says the economy is growing and bringing in money thanks to his Covid tax cuts, yet he announces in the same breath that he’s putting VAT back up again, which is simply going to risk choking off the growth.

Taking VAT from 12.5 per cent to 20 per cent is going to be a big bucket of cash coming out of our business at a time when we’re facing some really astonishing inflation already.

The cost of steak from our suppliers has gone up 38 per cent in the past two months. At 20 per cent, VAT will add nearly £3 to the price of our £15 burgers.

I’m concerned that this 7.5 per cent VAT rise is going to kill off many restaurants, particularly the smaller ones that don’t have our economies of scale. We’ll be OK as the revenues from our pubs and restaurants are about 25 per cent higher than most in our sector — people spend a bit more with us and we’ll have perhaps 100 covers where others have 75.

We put through some modest price rises in January, which have helped, and we have negotiated quite long terms on our supplies such as on wines where our suppliers can put prices up only by a certain amount. Raymond Blanc is also working with us on menus with an eye to keeping the prices down to protect our customers and the business.

Our strategy now is to do our damnedest to hold our prices where they are now. It feels like everybody else is going to really start pushing up, but we’re going to really sit tight as long as we can.

Consumers are suffering high inflation and we want to help them afford a good lunch or dinner. Restaurants and pubs who put their prices up are going to struggle to keep customers coming through the door. As a rule of thumb, the fixed costs — rent, energy, staff — on a restaurant or pub like ours mean that we need to turn over £20,000 a week before we make any money at all. We don’t even start breaking even until we’ve served the first 500-600 customers. So small wonder we cannot afford to lose a single one.

In the 15 years since I sold Loch Fyne, costs have just gone up and up. Most specifically tax. And in a historically low interest market, we are simply expected to push those costs on to our guests.

Staff costs
In relation to staff, our starting position is “how do we provide them with the best training and conditions to make a successful career in hospitality?” and when it comes to pay, naturally we support the notion of the minimum wage. But let’s not ignore that it does not include tips and that some of our people earn half as much again from the service charge.

Nobody wants to underpay staff, but with the successive increases in the minimum wage, labour costs as a proportion of revenue have gone up by 8 percentage points. On a restaurant taking £40,000 a week, that’s an extra cost of £3,200.

The government has put the minimum wage up a further 6.6 per cent this year, kicking in next month. Well, for us, that’s about £500,000 a year on a business that makes a profit of about £5 million. And who is the biggest beneficiary? HMRC.

The minimum wage is only part of the story on payroll costs, anyway. Every time you put up the minimum wage you have to do the same for the rest of the organisation to recognise the different levels of skill. This ladder effect just inflates the whole structure. This is at a time when we have a massive hole in the number of people available to work. Estimates are that we’re about 500,000 people short in the sector. Thousands left, amid Brexit and Covid, to go back to their country of origin and now it’s hard to get a visa to return — even if they wanted to.

It’s hard enough for bigger companies like ours with the benefits and career opportunities we can offer, but for a small pub, the only way to get enough people to work is to pay them far more. I’ve seen advertisements for potwashers paying £15 an hour. Now, I’m not saying washing pots is an easy job, but £15 an hour? It’s about the same as a junior doctor.

Employers’ national insurance is also on the rise, duty on alcohol has gone up every year pretty much for a decade or more and energy costs are astronomical, albeit many places have hedged to 2023.The harsh reality is that when we went into Lockdown Mk I, 10 per cent of the industry disappeared because everyone was already under massive pressure from taxes and overheads. Now the chancellor is pushing costs back up again and there’s every chance he will push more businesses over the edge. So how is that going to help repay the national debt you’re so worried about, Mr Sunak?

Sam Gill from Sylvera, a platform that helps companies manage their carbon footprint

SYLVERA

SAM GILL, 28
Sylvera

When the pandemic hit, I took a chance and launched my own company. I co-founded Sylvera, a carbon intelligence platform that helps companies make more informed decisions about which carbon credits to purchase [to help offset company emissions]. Nearly two years in, and the hurdles are mounting. Good talent is getting harder to hire and more expensive and I was hoping the chancellor would improve the current structure of the Enterprise Management Incentive (EMI) scheme to allow us to compete with larger companies with deeper pockets. But he didn’t, which was frustrating. Currently, the rules say that companies with assets of more than £30 million do not qualify for the scheme, which allows companies to grant shares to staff tax efficiently.

The UK tech sector’s been very successful and the sizes of the investment rounds these days are incredible. An early-stage funding round (Series A) a few years ago would have been on average about $5 million. You’re now seeing Series A rounds that are as much as $40 million. The current cap on the EMI scheme is £30 million. So you might be only two years old and have less than $1 million of annual sales, and you’re already cut out of the EMI option scheme. I fight for talent with the likes of Google, DeepMind, and the big banks. So EMI options are one of my key tools in that battle for talent — if you’re cut out of that, that’s a problem. It is a missed opportunity from the chancellor.

At Sylvera, we often win against these large employers because high-quality talent is really motivated to join the fight against climate change. But it is still a really aggressive employment environment. We benchmark our salaries to the market so staff costs are getting more expensive and you have to give quite hefty pay rises just to keep in lockstep with inflation at the moment.

After Brexit, it is a fact of life that it is harder to bring in high-quality talent so you need as many strings to your bow as possible to attract that talent. It’s very much in our interest as an economy because the tech sector is creating a huge number of high-paying jobs.

On the other hand, it is positive they have included research and development tax relief for cloud computing costs. They come into effect from April next year. We process petabytes of satellite data, so that will actually make a difference for us.

Larry Joyce, left, thinks there should have been a coherent energy policy delivered with the statement

LARRY JOYCE, 73
Kimbermills

It is a tough time to be running a business. Energy makes up between 8 and 10 per cent of my running costs and therefore any increase can have a significant impact.

Our business primarily takes large pieces of steel and heats them to high temperature before knocking them into the shapes our customers require. They can be used in anything from sports cars to skips to pipelines for the oil industry.

My contract with my energy supplier ran out in the summer and when I renegotiated the price was 20 per cent higher. We use three ways to heat the materials — electricity, oil-fired furnaces and gas-fired furnaces — to try to vary the impact of the costs.

It is not just my energy bill that is going up. Our products are heat treated by an external supplier who has begun adding a surcharge of as much as 85 per cent on top of the usual price because they did not have a long-term contract and had been relying on Gazprom for their fuel. It is an absolute nightmare for setting a pricing for our customers.

The other issue is that our material suppliers are not even giving us quotes because they cannot get the nickel and other products they need to make it.

All this means that when quoting long-standing clients I am having to reprice my quotes daily.

As much as I appreciate everything the chancellor has done to get through the pandemic, there was little in the spring statement to help me. The 5p cut on fuel duty did not help — it is just 2.5 per cent on the cost of diesel, which has gone up by as much as 50 per cent.

What I would really like to have seen is a coherent energy policy, which must include fracking as a new source of energy supply. Still, it is not as bad as the disruption of the 1970s/80s, when we never knew when the next strike or power cut would happen.

Zoe Nichols hoped “that Rishi Sunak might do something with the mileage rates to help”

NICHOLS, 35
Self-employed beauty therapist, Bournemouth

The rise in energy costs has already affected my business. I’ve had to put up my prices by a few pounds, which has caused some customers to cancel. Everyone is watching the price of running a home go up at the moment, meaning they’re going to cut me first.

The past two years have been difficult because, as a mobile beauty therapist, I’m working at close proximity. When people are sick, they need to cancel and I lose business. It’s just me and my three-year-old, Drayson, at home, and I’m going to be making adjustments to my everyday living to pay for the electricity bill. Disney+ is going to have to go, unfortunately.

Thankfully, I haven’t been too badly affected by the rise in fuel prices because I panic-bought an electric car earlier this month. But with energy costs rising, charging the car overnight is going to become more costly. I was hoping that Rishi Sunak might do something with the mileage rates to help. Currently, I can claim 45p a mile for the first 10,000 miles a year, and then 25p after that.

My customers have seen their bills go up while wages haven’t gone up in the same way, so everyone goes into a bit of a panic freeze and saves or cuts back. It would have been good if the chancellor had done something creative like Eat Out to Help Out, which was amazing for the hospitality sector. The personal care sector felt excluded, though, so it would have been nice to have something to help us as well.

The squeeze means people are less likely to have regular appointments every three or four weeks, and are more likely to save the splurge on eyelash extensions for a holiday. I’m going to have to make sure my marketing is on point so I attract new customers, but I’m trying not to be too doom and gloom about it.