What does the new ‘tier’ system mean for the hospitality industry?

There seems to be a recurring theme of economic struggle in several posts to The Legal Line Up blog, and a key industry yet to be analysed is the hospitality sector. Whilst I would love to write this piece about how the hospitality industry is booming and employment is higher than ever, the COVID-19 pandemic makes that difficult. In this post, I am going to look at impact the pandemic has had on the hospitality industry, with a particular focus on the new ‘tier’ system that has recently been imposed across the UK.

Surprisingly, the UK hospitality industry is larger than the automotive, pharmaceutical and the aerospace industry combined. The UK’s largest hospitality trade association ‘UKHospitality’ stated in 2016 that the industry is the 4th biggest employer in the UK, accounting for 3.2m jobs through direct employment, and a further 2.8m indirectly. In 2016, the industry generated over £73bn of Gross Value Added directly to the UK economy, and a further £87bn indirectly. These huge figures illustrate the importance of the sector to the UK economy. But the hospitality industry has more than just economic importance. Serena Hurst, dubbed the UK’s ‘most secure COVID landlady’ of the Wheatsheaf Pub in Stockport, Greater Manchester, spoke to the BBC about the social importance of the industry. She said that many of her punters tend to live alone and come to her pub to socialise and chat to others (completely socially distanced and within the legal framework of course).

The new tier system

The new ‘tier’ system will see the reimposition of closures for many venues within the hospitality sector. For those areas in tier 1, businesses and venues can continue to operate, but pubs and restaurants must ensure customers adhere to table service, and close between 10pm and 5am. The rule of 6 still applies. For those places in tier 2, the same applies but you can only go to a pub or restaurant with members of your household. Finally, for those unfortunate locations placed in tier 3, pubs and bars are only permitted to remain open to operate as restaurants, in which case alcohol can only be served as part of a substantial meal.

What does this mean?

If pubs and bars are forced to close without financial backing, then the number of redundancies in the hospitality industry will inevitably increase again. Many London venues have expressed concern about the Government’s ‘Job Support Scheme’, which will replace furlough in November. In tier 2 regions, the company will pay up to 55% of a worker’s pay, and the government will contribute up to 22%. This means employees will only receive around three quarters of their usual pay, and they must work a third of their normal hours to qualify. In an industry already plagued by low wages, this is simply not acceptable. It is also too onerous for both the big hospitality chains and the small independent ones.

Marstons are to axe up to 2,150 furloughed jobs following the introduction of the tier system. Another big player in the hospitality sector is Greene King who recently announced plans to cut 800 jobs citing the 10pm curfew and the winding down of furlough for its reasoning. It is clear that demand simply will not be there in the short-term future, and some businesses in the sector are blaming the Government for this.

Is the support there?

Over the last few days, there has been a struggle between local Greater Manchester officials and the Government to put the area into tier 3. Andy Burnham, the Mayor of Greater Manchester and Labour Party politician said it would be a “punishing” act without substantial support. Sir Graham Brady, MP for Altrincham and Sale West, and Chairman of the Conservative backbench 1922 committee has openly supported Burnham in his calls for more support. It became apparent on the 20th October that Manchester will be forced to move into the top tier on Friday 23rd October, but Andy Burnham maintains the support from the Government is not strong enough.

Law firms?

For full-service law firms, this once again presents an opportunity to capitalise on the economic downturn. In fact, last week some firms began to pay back the government furlough money as they got their business models right and performed much better than expected. I predict that there will be a swarm of job losses in the coming weeks, which will undoubtedly lead to an increase in employment issues. As has been a common theme throughout the pandemic, firms with well-regarded restructuring practices are likely to be busy, particularly those firms with a presence in the hospitality sector.

It is also evident that several companies are rebranding throughout the pandemic. For those businesses that have the cash reserves, the pandemic has presented the opportunity to really assess business models and missions. As companies rebrand, law firms with strong corporate practices will likely be involved with advising these companies on the best way to go about it.

To conclude, it is certainly fair to say that the short-term future of the hospitality sector is nerve-wracking without greater financial support from the Government. It will be interesting to see the developments between Greater Manchester and Westminster, and whether other areas will ‘follow suit’ and mount defence against the government.

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