Magner Calls for ‘Swift Government Action’

The Irish Hotels Federation has called on the Government to act swiftly to offset the impact that government policies are having on the operating costs of hospitality businesses.

Responding to a report examining the cost increases for businesses arising from employment-related measures, IHF President Michael Magner said that tourism and hospitality is now "at a crossroads with Government-controlled costs having a disproportionate impact on businesses throughout the sector".

A new analysis by the Department of Enterprise, Trade and Employment examining the financial consequences of the changes found that small hospitality businesses could experience an increase in payroll costs of up to 37% by 2026 as a result of the cumulative impact of employment rights policies introduced by the Government.

These include the introduction of pension auto-enrolment, parent’s leave and benefit alterations, the addition of statutory sick pay, the new public holiday in February, the transition to a Living Wage and the right to request remote working.

The report found that overall, the measures will only have a modest effect on the economy as a whole, with estimates of an increase in the range of 1.8% to 2.2% in wage costs.

The analysis estimates that annual wage costs could rise by 1.24% due to the transition to a Living Wage, by up to 0.54% due to the sick pay changes, by up to 0.32% from pension auto-enrolment and by 0.09% due to the introduction of the new public holiday.

There would be no extra cost from the introduction of the right to request remote working, or from the extension of Parent’s Leave and Parent’s Benefit, it claims, as the State bears the financial cost of the leave entitlements.

The report does acknowledge though that there are likely to be certain administrative and compliance costs associated with the replacement of staff on leave, in addition to potential productivity implications.

However, while the overall cost burden across the economy is found to be low, those in hospitality and retail will feel the effects most because of the Living Wage changes, the report states, with a much sharper increase in costs compared to other sectors.

Smaller hospitality firms could see their costs rise by nearly 7% this year and 19% by 2026, the study claims.

"In overall terms, this equates to an increase of 14.5% and 36.7% by 2024 and 2026, respectively (when the full impact of the transition to a Living Wage is accounted for)," the report states.

 Michael Magner said:

"The level of cost increases highlighted in this report are simply eyewatering for our sector. They echo the warnings we have been repeatedly making to Ministers in recent months about the much sharper increases in Government-controlled costs our industry is experiencing relative to the rest of the economy. This is at a time when general operating costs for hospitality businesses including hotels remain an enormous challenge and continue to increase at an unsustainable rate.

"Specifically, we are calling for a fundamental restructuring of Employers’ PRSI for our sector, including a targeted rebate for businesses within the sector. The lack of any support to date in relation to PRSI is very disappointing, and this must now be prioritised without delay."

He said that hospitality businesses are also experiencing the direct impact of the Government's decision to increase tourism VAT, making Ireland an outlier with the third highest rate of VAT in Europe.

Meanwhile, the Restaurants Association of Ireland welcomed the report’s acknowledgment that the cumulative effect of the policy decisions would have a disproportionate impact on the hospitality sector.

It also welcomed the acceptance that the increase in the VAT rate for tourism and hospitality businesses in the last budget added further cost pressures to those in the industry at a time when they were least able to withstand them.