How Will the National Living Wage Affect the UK Travel and Hospitality Industry?

From April 2016, the new National Living Wage come into force, replacing the National Minimum Wage, and taking hourly rates for workers over 25 from £6.70 to £7.20.

From the nightlife world to the restaurant industry, many have raised concerns about what this rise in the lowest legal hourly rate of pay could mean for business in the UK. Here, we look at what the National Living Wage means for the travel and tourism industry.

Closures to Hotels

Across all industries, the fear is that the increase to the monthly wage bill that the pay rise will cause could put many operations out of business.

The higher the proportion of workers on minimum wage – often those in unskilled or part-time roles – the harder hit the industry will be by the increase to the Minimum Wage. According to this logic, the travel and tourism industries are bracing for the hardest hit this April.

This is because of the industry's reliance on low-wage workers. Deutsche Bank research estimated a huge 30% of tourism and hospitality jobs pay the minimum wage, meaning the increase in costs to hotels and other travel services could raise the employee costs considerably. With room attendants, catering and service staff all needing to be paid more by the hour, hotel closures are a real concern for the industry.

From the hotels travellers stay in, to the restaurants they eat in, businesses are in danger right across the industry. Ciaran O'Neill, President of Northern Ireland Hotels Federation explains the issue:

“This biggest cost in any restaurant or hotel is people… If you introduce the living wage at the scale that the government is talking about until 2020, that is going to put a lot of restaurants, in particular, out of business.”

How Bad Could It Be?

Some businesses are already planning to raise prices in order to accommodate the extra costs. Where customers are happier to pay in line with these increases, the damage to the industry could be negligible. But in race-to-the-bottom parts of the industry like budget hotels or package holiday venders, there could be a big hit on profits.

Morgan Stanley analyst Jamie Rollo has warned that high street agents like Tui and Thomas Cook could see their profits hit by the rise in wages. He went on to suggest that as the National Living Wage rises by 6% according to policy over the next four years, the damage could get worse.

Others in the industry remain defiant however. On the Beach's chief marketing officer Alistair Daly argued that some companies already pay above the minimum wage, so this won't affect them.

“Even if the rise did affect us and we were having to pay more for our staff, we would not pass the extra cost on to the consumer,” he added.

The Future of the Industry

The extra costs are considerable: for every National Minimum Wage worker a company employs over the age of 25, the added annual cost will be £910. And as Rollo pointed out, this is set only to rise as the National Living Wage rises.

In an industry where service is king, reducing staffing headcount is simply not an option for many businesses. This means that, ultimately, operators in the tourism and travel industry will have to choose to either absorb the extra costs and see profit margins drop, or raise prices.

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