What impact will Brexit have on the UK’s hospitality industry?

With COVID beginning to recede, British hotels and restaurants are eager to reopen. But will they have the workforce to do it?

Prior to the COVID outbreak, it is estimated that up to 25% of the total work force engaged in UK hotels, restaurants, entertainment, and leisure businesses were EU nationals. Before the implementation of the new Brexit regulations, these EU workers were able to enter into the UK without a work permit or visa. With new restrictions in place, and in light of many EU nationals having returned to their countries of origin during the pandemic, UK hospitality employers are concerned that there will not be an adequate supply of labor as consumer demand resumes.

Under current UK work visa requirements, most low-skilled, non-UK workers will not qualify. Absent renewed migration by EU national workers into Britain, UK hospitality employers anticipate upward wage pressures and higher costs to attract and train local workers. This may be good news in terms of lowering UK unemployment figures. However, as many hospitality businesses were already hit hard by the pandemic, Brexit-related increases in UK labor costs come at a particularly difficult time.

For UK employers in the hospitality industry, the choices will come down to absorbing the higher labor costs, passing them on to the consumer, or finding technological solutions that may reduce the need for certain service employees. Regardless of the choice, significant challenges lay ahead, and many pubs, restaurants, and hotels may not have the resources to reopen.

On top of higher labor costs, UK restaurant owners also have noted that food prices across Britain are predicted to rise between 3–5% this year as a result of higher transportation and customs costs, also due to Brexit. Further, Brexit-related weakening in the British pound since 2020 means that UK hospitality businesses must pay more for USD and Euro-denominated imported goods.

As companies within the hospitality industry generally operate on close to a 10% margin (with exceptions, of course), again the Brexit-related impacts on these companies’ bottom lines will not be easily absorbed.

On a positive note, because Britain is outperforming other countries in COVID-control measures, UK vacationers who typically travel to sunny European summer destinations are likely to staycation and spend their money at home. Whether such domestic revenue is sufficient to offset foreign revenue and higher costs this summer remains to be seen.

Danilo Diazgranados is an investor, collector, and lover of fine wines and a member of the prestigious Confrérie des Chevaliers du Tastevin, a fraternity of Burgundy wine enthusiasts.