Newly released statistics have revealed a drop in company insolvencies in the UK accommodation and food services industry last year. However, companies in the hospitality sector are facing cost increases in April, with more than two-thirds saying they plan to cut jobs.
Company insolvency statistics released earlier this month showed that accommodation and food services insolvencies fell 7 per cent in 2024, from 3,737 in 2023 to 3,464 last year. Hospitality has been among the sectors worst affected by headwinds including COVID-19 and economic uncertainty over recent years, but there was a steady decline in insolvencies during summer and autumn last year, continuing into the winter.
The drop in insolvencies seemed to accelerate towards the end of the year as trading was boosted over the festive period. There were 224 insolvencies in December 2024, a month-on-month drop of 31 per cent compared to 327 in November 2024 and a year-on-year fall of 29 per cent from 315 in December 2023.
Saxon Moseley, partner and head of leisure and hospitality at RSM UK, commented: “Food and accommodation insolvencies in December fell to their lowest level in over two years, providing a welcome Christmas gift for the sector. For some operators, December would have been the last roll of the dice to take advantage of the festive trade and build up a war chest of reserves.”
While the fall in insolvencies is cause for optimism, hospitality businesses continue to face numerous challenges, which could be further exacerbated by incoming cost increases.
Saxon Moseley commented that there was “caution ahead”, with hospitality firms trying to “juggle fragile consumer confidence, plus a deluge of upcoming tax and regulatory changes which are set to see operating costs surge.”
He continued: “Struggling businesses may have been able to limp through the busiest month of the year in December but with cost increases on the horizon, some may be weighing up their options.”
From April, employer National Insurance contributions (NICs) will increase to 15 per cent and the threshold at which they are due will be lowered from £9,100 to £5,000. The same month will also see the national minimum wage increase 6.7 per cent to £12.21 per hour.
In response, hospitality firms have said they will likely make job cuts and reduce investments, while some say they may be forced to reduce trading hours or make closures because of escalating costs.
In a joint survey of pubs, bars, restaurants and hotels, trade bodies the British Beer and Pub Association, the British Institute of Innkeeping, Hospitality Ulster and UKHospitality urged the government to delay the planned changes to NICs.
70 per cent of respondents to the study said they expected to reduce employment levels due to cost increases, while 60 per cent said they would likely cancel planned investments. 29 per cent stated that they intended to reduce trading hours and 15 per cent said that they would have to close at least one site.
Despite falling insolvencies, the survey highlights the financial fragility that still afflicts the sector, with 25 per cent saying they have no cash reserves remaining – up by 6 percentage points from October 2024.
There are additional causes for optimism, however, with RSM’s Saxon Moseley suggesting that consumer spending could rebound over the coming months.
He commented: “With real wages now growing at 2.5% - the fastest rate in four years – this should eventually feed through to higher household consumption and provide a boost to the hospitality industry. Businesses that can hold on and weather the storm of National Insurance rises will reap the benefits of an uptick in consumer spending which is expected to come later this year.”
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