Unchecked inflation: will restaurants pay the price?

By Tom Ryan, researcher


After two years of covid restrictions, England’s oldest pub, Ye Olde Fighting Cocks in St Albans, is closing its doors. The historic shutdown is a bad omen for the hospitality industry, which has continued to suffer even after the easing of lockdown rules. Now, the spectre of inflation threatens to be the hammerblow.


Hospitality businesses were one of the worst hit by successive lockdowns. Almost 1000 pubs and restaurants closed in the three months from July to September 2021, and the first lockdown alone cost the industry £45 billion. The chancellor sought to alleviate the problem with his ‘Eat Out to Help Out’ scheme, but this was at best a very expensive short term boost. Sunak’s willingness to spend £849 million subsidising meals bloated the pandemic debt pile, worsening the threat of further tax rises which now threaten to suppress demand.


Restaurants started off 2022 in a particularly bad place, with the omicron variant decimating Christmas bookings due to customers self-isolating for fear of spoiling their Christmas travel plans and staff being hit by another ‘pingdemic’. The combination of this virulent strain and the end of furlough created a worst-of-all-worlds situation, potentially costing the industry a further £3 billion at this time of strife.


The bad news does not end there. The latest ONS data shows that inflation skyrocketed to 4.8 per cent in December, a huge increase from 2.8 per cent in September. Andrew Bailey, governor of the Bank of England, warned last week that inflation could rise by seven per cent by the summer and would not return to normal for almost two years. Tesco chairman John Allan also noted that supermarket food prices are unlikely to have hit their peak. Price hikes will be critical to an already besieged hospitality industry, which faces the end of the reduced 12.5 per cent VAT rate.


Mounting pressures are already having an effect. A recent survey by UK Hospitality found that 93 per cent plan to increase their prices by an average of 11 per cent in the next few months. Costs are soaring. Overheads are increasing due to rising energy bills. Restaurants are being forced to pay higher wage bills and sign-on bonuses to entice staff. The HGV driver shortage has only compounded the problem by pushing up the price of raw materials. 


This multitude of pressures is leaving hospitality businesses with little option but to increase their prices, and we’re in danger of drinking and dining out becoming the preserve of the well-off. So what can the government do to prevent this? Rather than taking with one hand and giving with the other, ministers must ensure taxpayers and businesses keep more of the money they have earned. 


By extending the temporary VAT decrease into 2023 and reigning in public spending post-covid, the government can ease our economic recovery without building up further debt. It would be a tragedy for venues that have limped through lockdown and are finally getting back on their feet to fall at the final hurdle. 

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