Pubs running on empty as support from government proves inadequate

Throw into the mix the fall-out from a series of ill-judged economic policy measures by new Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng and the problems have mounted up even further, with the sweeping tax reforms pledged by the Tory hierarchy causing financial markets to revise forecasts for interest rates up and leading to fresh fears about inflation.

Speaking to The Herald about his company’s latest financial results, Mr Sharp was characteristically upbeat about the long-term future for Innis & Gunn.

But as uncertainty hangs heavily over the economic outlook, he seemed to sum up the feelings of many when he declared that “everyone is digging into their reserves of resilience” as what will inevitably be a testing winter moves closer.

It is certainly a sentiment that will be familiar among people who earn their living from the broader hospitality industry, who have faced one challenge after another since Covid-19 was declared to be a pandemic by the World Health Organisation in March 2020.

A survey published in recent days by the Scottish Licensed Trade Association captured the prevailing mood within the sector, with the findings making for extremely worrying reading.

Nine out of ten businesses said they will require government support to survive the winter, as operators head into the final quarter not only saddled with “significant debt” built up during the pandemic but facing “enormous increases” in energy bills.

One in four of the 600 businesses surveyed, which collectively represent around 10% of the Scottish on-trade, said they are facing an increase in energy costs of more than 500% – despite the six-month cap on energy prices pledged by the UK Government.

With consumer confidence faltering in the face of surging inflation and rising interest rates, and so much uncertainty over the immediate economic outlook, it was no surprise that the survey found that 45% of businesses expect to reduce their opening hours, which the SLTA says will have an impact on tourism and employment. Ten per cent said they will close completely for the winter.

These are but a few of the many difficulties currently facing hospitality businesses, around 50% of which are trading at “significantly” below pre-Covid levels. “Our pubs and bars have worked very hard post-Covid and Brexit to showcase Scotland’s hospitality industry, but with a tsunami of rising costs and low consumer confidence we urgently call on local and national governments to help us through the winter,” said Colin Wilkinson, managing director of the SLTA.

“We must protect jobs that outlets provide directly and the associated jobs in the wholesaling, brewing/ distilling and food-producing sectors.”

The concerns highlighted by the SLTA survey came shortly after fellow trade body UKHospitality issued a warning that the industry is at risk of “going dark” this winter, with many outlets deciding it will simply not be cost-effective to operate through the season. Kate Nicholls, chief executive of the organisation, told The Herald that businesses in rural areas were more likely to take this decision, given that their trading patterns tend to be more seasonal.

But it would be wrong to interpret this as a sign that businesses in towns and cities are faring much better than those in rural areas, or that small firms are more at the mercy of the current headwinds than their larger counterparts.

Mitchells & Butlers, owner of 1,700 pubs across the UK including Glasgow’s Horseshoe Bar, saw its share price fall sharply on Thursday last week after warning that cost inflation was “putting increasing pressure on margins” while also acknowledging the financial worries facing consumers. Even with the six-month energy support for business, the company said its energy and utility costs will increase by around £150 million this year, with a further rise expected in 2023.

“The trading environment for the hospitality sector remains very challenging, with cost inflation putting increasing pressure on margins, and we are also mindful of the pressures on the UK consumer over coming months,” said chief executive Phil Urban.

The UK Government is not wrong when it says many of the current economic problems are global in nature. The surge in energy costs has, of course, largely been driven by Russia’s war on Ukraine.

But the Tory administration could have done more to help.

By the time Liz Truss announced the six-month support package for businesses in September, companies across the economy had been dealing with hugely elevated bills for months. Similarly, consumers were forced to endure an extremely worrying few months before ministers eventually unveiled the energy price guarantee, which means the electricity and gas bills for typical households will average around £2,500 for the next two years – which it should be remembered is about double the prevailing £1,277 price cap of last winter.

On both fronts, considerable worry could have been averted had the UK Government been more in tune with how concerned people and businesses had become as energy prices spiralled.

Moreover, there is now a feeling across the industry that the action that has belatedly been taken will not be enough.

Innis & Gunn chief Dougal Sharp was correct when he stated this week that six months of energy support does not give enough visibility for businesses which make plans over much longer timelines. “We need long-term stability and clarity about what the long-term strategy is going to be, because six months is vanishingly short in business,” he said.

A similar observation was made by Jackie Brierton, chief executive of rural enterprise support agency GrowBiz Scotland, who told The Herald that six months “isn’t long enough for businesses to plan – particularly given the decrease in income many rural enterprises face during the winter period”.