Euro vision: What referendum decision is best for hospitality?

17 March 2016
Euro vision: What referendum decision is best for hospitality?

When The Caterer asked hospitality operators to look ahead to the referendum, the majority believed that staying in the EU would be best for the industry, but there's still dissent in the sector and beyond. David Harris looks at both sides of the ongoing debate about Brexit

Dithering has become a popular response to the European referendum. It started at the top. The prime minister was called "dithering Dave" right up until he announced his wholehearted backing for his deal to keep Britain in the European Union (EU). Boris Johnson was similarly self-confessedly "veering like a shopping trolley" before deciding to throw in his lot with the ‘out' campaign.

So it is hardly surprising that the hospitality business has its own portion of doubters. Beppo Buchanan-Smith, owner of the Isle of Eriska Hotel, is among the waverers. The reason is partly that it is unclear what the results of a vote either way will be.

He says: "We have very little to go on. I am positive about the EU in that it seems to have helped us in recruiting staff more widely, and I am negative about the EU in terms of red tape. But it is not clear what would happen with recruitment if we did leave the EU. We need to find out these things in order to know which way to vote. At the moment I am dithering about which side I will support."

Even those who are more certain of their backing for staying often admit they need more information to be absolutely sure. Andrew Stembridge (pictured), managing director of Chewton Glen and Cliveden, says: " I do think we need more information on the consequences of leaving to be clear about what everybody is voting for, but I suppose I feel quite strongly that we should remain.

"One of the reasons is staff. I am old enough to remember, for example, when it was an ongoing battle to get housekeeping staff. And when we did get them, they didn't want to work at weekends or split shifts so they could come back for turndown. With east European staff, that is simply not an issue. I don't know what we would do now if that changed."

You can almost hear hospitality managers up and down the land murmuring their agreement. But staffing is not the only issue. Stembridge is also keen to understand better how Brexit might affect the flow of overseas guests. He concedes that there may not be any difference, but he would like a clearer perspective one way or the other.

Then there are exchange rates. If leaving the EU weakened the pound, this could be a boost for business in that it would be more attractive to guests paying in foreign currencies. But hospitality is a spender as well as an earner, and Stembridge points out that a lot of wine, food and business equipment is bought from abroad and that those prices would go up. Again, more information is needed.

This sense of information deficit finds sympathy across the industry. Peter Ducker, chief executive of the Institute of Hospitality, says: "The discussion around Brexit is extremely short on facts, and it will be impossible for the British public to make a balanced and informed decision on 23 June. There are so many questions about what an exit from the EU would mean for Britain. No-one is able to give any convincing answers and this is likely to remain the case. We would only discover the real consequences once we had actually left. Beneath the bluster and the political posturing, this fear of the unknown puts the leave campaign at a significant disadvantage. This is unfortunate, because it prevents us from having a proper, balanced debate.

"For the hospitality and tourism industries, there are two key areas to consider. First, half of all tourism revenue in the UK comes from overseas visitors, with a large proportion from Europe. Any changes as a consequence of leaving the EU that make it more complicated or difficult for Europeans to visit the UK will be damaging for our industry.

"Second, hospitality employs a large proportion of migrants, many from Europe. InLondon, a whopping 69% of the hospitality workforce were not born in the UK. Nearly a third of all hospitality managers are migrants. Again, any changes as a consequence of leaving the EU that make it more complicated or more difficult for UK employers to recruit staff are likely to be harmful to our industry."

It is issues like these that mean for industry stalwarts such as Stembridge, the conclusion appears to back his instinct that we should stay where we are: in Europe rather than out.

Stembridge says: "Even the alleged benefits in cutting red tape seem unproven. After all, we are pretty good at imposing our own red tape without any help from Europe. And things are working well at the moment. If it ain't broke, don't fix it. We are in Europe now and once decisions are made, when you reverse them, you don't go back to where you were before."

The majority rule

All of which puts the Chewton Glen managing director in line with the majority of the UK hospitality business, at least according to The Caterer's survey. Out of nearly 800 industry professionals, 61% thought it better for the hospitality industry to stay in the EU. Staffing and costs were two of the big reasons cited.

Publically named supporters of the ‘remain' campaign include Ruth Rogers, owner of the River Café; Ashley Govier, managing director of the cleaning firm Hotel Services Group; Tony Fernandes, who founded the budget hotel firm Tune Group; and Paul Walsh, chief executive of Compass. All of them signed a letter to The Times in which nearly 200 UK business executives pledged their support.

It is worth noting, however, that while Compass's chief executive might back remaining, his company itself remains neutral on the issue. A company spokeswoman says that "Compass does not have a comment re the EU referendum at this stage".

Another institutional supporter of remaining in the EU is UKinbound, which has said that 82% of its 350 members want to stay.

For some, avoiding supporting either side of the debate is the favoured route, including the InterContinental Hotel Group. A spokeswoman says: "Our position is that we are a global brand and that the UK is an important but relatively small part of our overall business. We haven't stated that we should be in or out because we tend to remain apolitical, but our view is that either way it will have minimal effect on our business."

London's Savoy hotel, run by Fairmont, also declined to comment, as did the Dorchester Collection. At the other end of the hotel market, Travelodge took a similarly non-commital line, while a spokesman for Accor says that it tends "not to comment on political issues".

Given the spread of opinion, the BHA seems to have decided that it should tread a line that simply accepts its members have different views. Ufi Ibrahim, its chief executive, says: "The British Hospitality Association has a duty to ensure all our members' interests are represented, whatever the outcome of the referendum and what we all have in common is the desire for economic strength and certainty."

Even the trade unions representing hospitality staff are stopping short of expressing unequivocal support for the EU, partly on the grounds that the EU's backing for austerity measures has diluted its social policy agenda. Unite, for example, says that "EU directives and court judgements have significantly weakened workers' rights".

Nevertheless, Unite is broadly in favour of remaining in Europe, although its opinion on the referendum will be formally decided in a few weeks when its executive council meets.

The industry speaks

For the time being, high-profile individual hospitality figures seem more willing to be open about their views than large groups or corporations. And while it might be true that a majority of hospitality figures favour staying in at this point in the campaign, there are significant Brexit supporters too.

They include Sir Rocco Forte (pictured), chief executive of Rocco Forte Hotels, who has said that cutting ties with Brussels was his preferred option: "If we went alone, it would increase our reputation and clout in the world, not reduce it," he said, although he added that if the UK could opt out of the EU's social policy and keep control of its own tax system, he could change his mind.

Another figure who has given the leave campaigners some colourful support is Tim Martin, the founder and chairman of JD Wetherspoon. He is a long-standing Eurosceptic and made his views plain in an article in Wetherspoon's in-house magazine.

His commitment to the 'leave' campaign is more a matter of a belief in each country retaining self-control rather than any opposition to migration. In fact, Martin speaks approvingly of how the UK has "benefited from an influx of people from other regions of the world".

However, he adds: "The key issue about migration, similar to the issue about the euro, is that the debate needs to take place in each country - and the decisions regarding migration need to be made by elected parliaments in those countries. It makes no sense, in the UK, for these sensitive issues to be decided on by faceless bureaucrats in Brussels."

It is no surprise that there is passion on both sides, and between now and 23 June there are likely to be many twists in the argument. It is a complicated subject that will fascinate some, weary others and leave a few frankly perplexed.

As one long-standing industry executive observed: "It's such a complex topic - for once, I don't even know which way to vote. And I have very clear political views."

What do you think?

Will your hotel be worth less if the UK leaves the EU?

It has certainly been a good time for UK hotel investment in the last couple of years, with the latest European Hotel Transactions report in March revealing that of €23.7b (£18.3b) spent on hotels in 2015, the UK accounted for nearly half (48%) of that by value and London saw 63% of all single-asset sales.

Russell Kett, chairman of HVS London, says the referendum is "not coming as a huge surprise". He believes it is possible that some investors or purchasers could either make hasty decisions if Brexit appears likely or perhaps avoid making decisions at all until the referendum is over. But even if the UK leaves, Kett is not expecting seismic changes.

He says: "If we do pull out of the EU, I honestly feel there will be very little change for the hotel sector from a performance and valuation point of view. We have a very vibrant economy in the UK, and if pulling out of the EU is the decision that's made, then a way will be found to keep the economy buoyant. There is huge pent-up demand for visitors to the UK, particularly to London, and tourists won't suddenly decide not to come because of a change in our political affiliation."

What could happen?

The relative economic benefits of remaining within the EU or leaving it depend very much on who you listen to.

Possible advantages of leaving

There will be a jobs boom as small and medium-sized employers are freed from regulations and red tape, 'leave' campaigners claim. Thinktank the Institute for Economic Affairs dismisses the idea put forward by the 'remain' campaign that jobs could be lost.

The best-case scenario, according to thinktank Open Europe, is that by leaving the EU, the UK could be better off by 1.6% of GDP a year by 2030, assuming the UK strikes favourable trade deals and carries out widespread deregulation. However, it also notes that a "far more realistic" range is between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030 in scenarios where Britain mixes policy approaches.

Leave campaigners point out that the UK's net contribution to the EU in 2014/15 was £8.8b, nearly double what it was in 2009/10 and that leaving would save money.

Possible disadvantages of leaving

Millions of jobs could be lost as global manufacturers move to lower-cost EU countries, 'remain' campaigners say. There are some concerns that jobs in the financial services sector, which employs around 2.1 million people, could be lost.

The Centre for Economic Performance at the London School of Economics has warned that a worst-case scenario for the UK economy if it leaves the EU is a 6.3% to 9.5% reduction in GDP. The best case is a loss of 2.2% of GDP.

Remain campaigners point out that the UK's £8.8b net contribution to the EU in 2014/15 is actually just 1.4% of total public spending.

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