2024 in review – what happened in the UK hospitality industry this year?

By Barry Lane|Dec 16, 2024|4:53 pm GMT

We’re heading into a festive season where consumers are predicted to spend £12.3bn on hospitality––a 2.3% increase on last year’s festive revenue. This will be welcome news for operators, who spent the first half of the year dodging punches from the outgoing Conservatives, only to walk into a knockout right hook from an incoming Labour government come Budget day.

Spring: Conservative legislative changes hit

April set the tone for 2024 with an update to workforce legislation that increased the National Minimum Wage (NMW) by 9.8% for over-21s, taking it to £11.44 per hour. Operators responded by cutting hours, which were down 7% between January and July of this year. The one exception was under-21s, whose hours increased by nearly 16% as businesses used younger, cheaper workers to plug labour gaps.

At the same time, an increase in the earnings threshold for Skilled Worker Visas kicked in. Under these changes, 95% of the hospitality visas approved in 2023 would have been ineligible. This change put more pressure on labour costs, forcing operators to either vastly increase salaries for foreign workers––by 47.7% in some cases––or compete for dwindling local talent.

Summer: Sporting events dominate and interest rates start to fall

A washout summer weatherwise was bolstered by sporting events, including the UEFA European Championships (Euros) in June and the Paris Olympics shortly after. Both contributed to increased drinks sales for the pub trade.

Interest rates also started to fall––great news for debt-burdened operators. The Bank of England (BoE) cut rates in August to 5% shortly after Labour won its first election in 14 years. These were revised down again in November to 4.75%.

BoE Governor Andrew Bailey has hinted that the central bank could further reduce interest rates by 0.25% each quarter throughout 2025, taking the benchmark to 3.75% by this time next year. However, Bloomberg Economist Dan Hanson warns that the days of 2% are long gone, and interest rates aren’t likely to fall below 3% even into 2026.

Autumn: New tipping legislation and a new government

The Employee (Allocation of Tips) 2023 Act, proposed by the outgoing Conservative Government, finally came into effect in October. It increased employer responsibilities around tronc distribution and record keeping.

But it was Labour’s sweeping reforms to employee rights that commanded headlines. Promised in its manifesto and unveiled as the Employee Rights Bill 2024-5 within its first 100 days, the new Bill proposes 40 widespread updates to employee rights. These range from abolishing zero-hours contracts to extending parental and sick leave rights. While it’ll take some time to go through the legislative process and likely won’t come into effect until at least 2026, the Bill has already been debated in Parliament. It is now with a Public Bill Committee, which will report back to the house on January 21st.

Winter: Hospitality’s first AI and Labour’s first Budget

Fourth generated some news of our own with the launch of Fourth iQ, an AI built specifically for hospitality and trained on the largest dataset in the industry. Developed in response to ever-increasing operational costs, Fourth iQ provides a suite of tools to help operators achieve efficiency gains and conserve margins without jeopardising the guest experience. Features like AI Forecasting and Auto Scheduling enable operators to gain a clear picture of customer demand and then optimise labour deployment efficiently to maximise profits.

Fourth customers, including The Restaurant Group, Big Table Group, BKUK, and Thai Leisure Group, already benefit significantly from our AI-driven tools. Customers using Fourth iQ have already reduced overscheduling by 22%, saving £3m in labour costs and increasing sales by 15%.

The end of October brought with it Labour’s first Budget, received by the business community with heart palpitations and cold sweats.

The Chancellor announced that April 2025 will see yet another NMW increase, with over-21s hourly rates rising nearly 7% to £12.21. NMW for under-21s will increase to £10 per hour. The new Government also clobbered businesses with changes to employer National Insurance Contribution (NIC), reducing the threshold for NIC to £5,000 and increasing contributions by 1.2%. This hits hospitality particularly hard and means a swathe of part-time workers previously exempt now fall within that threshold.

Business Rates and the pending expiry of the 75% relief rate have been an ongoing stress for hospitality operators. The Chancellor confirmed that rates will increase 35% in April, capping out at a permanent 40% relief.

In a minor win for hospitality, the Budget included a cut to draft alcohol duties equal to 1p per pint. Rates on non-draft duties will increase in February.

The potential impact of the autumn budget in 2025.

The number of measures introduced in the Budget that could materially hurt hospitality was a hammer blow to the industry. The increase to NMW and NIC is slated to come into effect in April 2025, with business rates set to arise in the same timeframe.

Already running on tight margins, operators have little option but to trade their way out of the melee, growing sales and encouraging customers to spend more. This means investing in technology to reduce costs and increase operational efficiency–ensuring you don’t miss any sales running needfully lean teams. Strategies to increase footfall, diversify, and open up new revenue streams will also be essential for 2025.

In its November survey of over 2000 business leaders, the BoE included a new question about the expected impact of NIC updates. Nearly two-thirds of UK businesses said they would lower profit margins in response, 54% said they would raise prices, 54% said they would lower employment, and 34% said they would pay lower wages than they would otherwise have done.

The Shadow Treasury Secretary, Richard Fuller, told Parliament that NIC changes would cost “Our pubs and clubs, our hotels and restaurants” £1bn, a figure calculated by trade body UKHospitality.

Meanwhile, the FT estimates that the business rate changes will increase the amount paid by UK businesses next year to £900m, rising to £2.7bn in 2026. And a group of the UK’s biggest retailers summarised the “cumulative burden” of the changes in an open letter to the Chancellor. They stated that the changes’ “will make job losses inevitable and higher prices a certainty.”

The CCI may be on the rise now, but costs will increase next year––as may unemployment––and that’s likely to weigh negatively on consumer confidence and spending, making it harder for operators to grow revenue.

In the first episode of Fourth’s new podcast, Inside Hospitality, Peter Martin, founder of Peach 20/20, discussed how increased cost pressures impact the eating-out market. He stated that operators “need financial clout, financial headroom, and investment to survive” and noted that this is giving rise to an imbalance, with independents suffering more closures. For 2025, he predicts that “The gap between those struggling and those doing well will get bigger.”

What else does 2025 have in store?

While 2025 lacks big sporting events or national celebrations – that might prompt people into pubs, restaurants and hotels – it offers a blank canvas for innovation. Aside from new legislation (which is as certain as death and taxes), there’s nothing major in the hospitality 2025 calendar. This quieter backdrop may allow operators to take control and innovate, whether thats new guest experiences or embracing AI.

With the right strategy, 2025 could be the year that hospitality operators redefine success, proving that, as an industry, we have the mettle to adapt, innovate and stay ahead––even if there will still be punches to duck.