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Energy surcharges loom as restaurants face crippling costs

Published:  08 September, 2022

Businesses are facing a brutal decision this winter: charge customers to keep the lights on, or risk going bust under eye-watering energy bills.

From various quarters, Harpers has learned that restaurants are now looking to pass on significant costs. In some cases, this even includes considering introducing an ‘energy surcharge’ to customers in order to cope with spiralling costs, which are up by as much as 700%, according to some reports.

James Allcock, owner of The Pig & Whistle in Beverley in Yorkshire, for example, has warned that his restaurant could close after a recent quote for his annual energy bill skyrocketed 700% from £2,000 to £22,000.

In a tweet, which had 60,000 thousand likes at the time of writing, he said: “Unsure what to actually do next, but as a business, that cost would now be more than I pay in rent and more than I take some months. I simply don’t have the money for this”.

He added: “It really does beg the question are mid weeks and lunchtimes even worth it anymore”.

Gaultier Soho, meanwhile, is considering charging £10 per head to customer bills as its energy costs are set to rise from £25,000 a year to £160,000.

The pressure on businesses is such that some are predicting worse closures under the energy bills crisis than Covid.

In figures released this morning by UKHospitality (UKH), one in five businesses say they will not survive the current costs crisis. Three in five operators admitted they are no longer profitable.

According to the UKH survey, the average energy price increases for the hospitality sector is currently at 238%. Over 70% of businesses are seeing bills more than double, while nearly 30% are being hit with rises of over 300%.

The increases mean average energy costs as a percentage of turnover have jumped from 5% in 2019 to 18% today. As a result, energy bills are now the second largest cost (up from a fifth) to businesses, and account for a greater proportion of turnover than rent and rates combined.

These views, collected by a survey of around 7,500 venues via 150 companies, are also shared by many smaller businesses, who have spoken out on Twitter and through various outlets over the past week.

Allcock, who operates a “tiny 22-cover restaurant”, believes that failure of government to provide a longer-term deliverable plan will result in closures far worse than witnessed under Covid.

Now, the question becomes what – if any – measures will be taken by government to alleviate the pressure. A packet of measures is widely believed to be announced over the next 24 hours by new Prime Minister Liz Truss. According to the Telegraph, she is expected to announce a freeze on energy bills and give businesses ‘some energy bills protection’, alongside other measures such as scrapping green levies on energy bills.

In the meantime, UKH has under-signed a letter from 300 hospitality CEOs, asking new Chancellor, Kwasi Kwarteng, to urgently deliver a package of support to help the sector with soaring costs.

With price increases now inevitable, it remains to be seen how far consumer goodwill and understanding will stretch in a particularly fraught economical situation. Restaurants are hugely energy intensive businesses, with kitchens, bars and dining areas even in the smallest venues having to bear the brunt of huge costs. According to UKH, three-quarters are being forced to hike prices, while more than six in 10 are reducing staff hours. Four in 10 are reducing their headcount, and half are cutting trading hours.

Some imagine that customers will continue to support their local businesses as they put up prices and reduce availability. However, it remains to be seen how this understanding will hold when customers are faced with paying their own higher-than-usual energy bills as well as their host’s.

Many expect the knock-on effect to be dire if reparations are not swiftly made. UKH and its signatories are now calling on Kwarteng, for “a plan that cuts business costs, stimulates demand and tackles inflation”.

The letter proposes a five-point plan of action through to April 2023, with a review in early 2023. The plan comprises: a 10% headline VAT rate for hospitality; a business rates holiday for all hospitality premises, with no caps; deferral of all environmental levies; reinstatement of a generous HMRC Time to Pay scheme; and reintroduction of a trade credit insurance scheme for energy.

In a statement, UKH CEO, Kate Nicholls, said encouraging talk of energy price freezes for families and businesses “won’t be enough to save hundreds of businesses and thousands of jobs in the sector”.

She added: “The hospitality sector is critical to our national economic and social recovery and with support will be well placed to drive growth, generate jobs and invest in local communities. To achieve this however, the new government needs to act quickly to address the soaring energy costs that are strangling the sector.”