There will be double-digit price increases starting today, businesses in the service industry warn.

Price increases are being anticipated in the hospitality industry, and some worry that they would have “catastrophic” effects on pubs and restaurants and, in turn, “cause the UK’s larger economic recovery to stall.”

Due to the expiration of a tax concession instituted during the pandemic, VAT increased today from 12.5% to 20%. UKHospitality, an industry group, predicts cost inflation of 18% in the hospitality industry in the coming year.

Both the National Minimum Wage and the National Living Wage increased today, benefiting around 2.5 million workers with an annual increase of nearly £1,000 in salary. People in large numbers will be working in the hospitality industry, where starting salaries are low. With salary costs on the rise, firms will be under even more strain.

As a result, many businesses in the industry have little choice but to boost prices to recover some of their spiralling expenditures. According to UKHospitality, cost increases of 10 percent or more are probable.

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The group criticised the administration for not postponing the VAT increase in light of the rising cost of electricity. Kate Nicholls, chief executive officer, warned, “The return to 20% VAT for the sector will prove nothing less than devastating.” Many hospitality firms may fail as a result of the already expected price increases for consumers, as one-third have less than a month’s cash reserves and majority are bearing high debt burdens. The larger economic recovery in the UK can only falter as a result of this.

UKHospitality conducted a survey of firms in the hospitality industry and found that there has been an average increase in energy expenses of 95% in recent months, an increase in labour costs of 19%, and an increase in food and drink prices of 17% and 14%, respectively. According to a separate report by energy consultancy Cornwall Insights, small businesses’ energy costs have increased by a staggering 250% over the course of the past year.

“The government might have helped soften the pain and aided the recovery by keeping VAT at 12.5% for longer, but now the industry is also confronted with this returning to 20%,” said Charlie Gilkes, founder and director of The Inception Group, which runs the Mr. Fogg’s chain of pubs. This is going to be unbearably difficult to bear.

The administration is struggling to keep the economy afloat in the face of excessive inflation and tax hikes, which has resulted in a cost of living crisis across the country, affecting millions of households. Today’s families face a double whammy from rising energy costs and council tax.

Most companies would rather not raise prices when consumers are feeling the effects of a tightening economy, but they have little choice.

According to UKHospitality, the hospitality industry accounted for 10% of UK employment before the coronavirus epidemic and generated £130 billion in economic activity and £39 billion in tax revenue.

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