Industry looks for ways to save cost of NI hike
Both employers and employees will pay more as a result of Gordon Brown's tax-raising budget last week. But will it mean job losses? Ben Walker reports.
The rise in wage costs caused by Gordon Brown's 1% hike in national insurance has not been welcomed by restaurateurs and hoteliers. But fears of job losses were dismissed by trade and industry minister for small businesses, Nigel Griffiths MP, last week. He said the same fears had been raised when the national minimum wage was introduced, but they had proved to be unfounded.
Ian Glyn, director of Loch Fyne restaurants, said that cutting jobs was not an option for the labour-intensive restaurant sector: "Restaurants have a level of productivity and service they have to keep up, which means they cannot cut costs by cutting staff. Only two options are really open to them - either to make less profit or pass the increases on to the customers."
Tricky choice Glyn would not be pinned down on this tricky choice, which he has until next April to make, although he acknowledged that all restaurant prices, including Loch Fyne's, had gone up over the past three years.
The group employs about 500 staff at 16 restaurants and has an estimated turnover for 2001 of £11m. Glyn said its wage bill would have risen by £900,000 by next April, compared with three years ago, because of the accumulated effect of the minimum wage, holiday pay legislation, and the rise in national insurance (NI). Although the first two reforms were of direct benefit to hospitality workers, Glyn said he saw all three as "wage costs" which from next April would account for 30% of turnover in the restaurant sector overall, compared with 25% three years ago.
Carl Leaver, managing director of Travel Inn, echoed the disappointment with the creeping rises. He said that the national minimum wage was of direct benefit only so long as people had jobs: "If you start making it significantly expensive to recruit, then you threaten job creation."
Leaver said Travel Inn was opening one hotel every 10 days (which means on average Travel Inn creates about 66 jobs a month). He did not see this rate of growth slowing for now.
However, the UK is nearing full employment. The skills shortage still exits. It is debatable whether continuing job creation, at the expense of increasing efficiency and pay, is sustainable or even desirable.
One solution to wage costs could be to employ more part-timers, a British Hospitality Association spokesman said. The NI rise applies only to earnings above £89 a week, or £4,615 a year. Leaver described this as a "marginal solution."
The hole in most people's pockets from the 1% rise will not lessen the demand for eating out, according to Glyn, who said he thought Loch Fyne might gain from customers trading down from more expensive restaurants. Leaver said that since the Budget's NI increase was more focused on business than on individuals, his budget chain was set to benefit from corporate belt tightening. Sixty percent of its guests are business people.
A spokesman at the Federation of Small Businesses, which represents about 7,000 hoteliers, café owners and restaurateurs, said the reduction in corporation tax would benefit 500,000 limited companies, but not the majority of small businesses which were not incorporated.
Tax benefits
However, those discouraged by the red tape involved in registering as a small company may now do so in order to benefit from the drop of 1p to 19p in tax on profits over £10,000.
The spokesman added that fledgling companies would be greatly helped by paying no tax on profits of less than £10,000. He also welcomed the simplification of VAT collection - this means businesses can agree a flat rate based on turnover rather than calculating the exact amount due every quarter.
And yet these positive measures were overshadowed by the NI increases which, as the equivalent of a 2p hike in income tax, meant Gordon Brown had failed to fulfil his pledge to encourage enterprise, according to the Federation.
