Hospitality firms offer higher pay to offset tax rises
Hospitality businesses in Scotland are being forced to offer higher salaries to potential recruits in order to overcome the higher income taxes imposed by the SNP-led government, a committee of MPs have been told.
Trade groups complained said this is adding to the problem of skills shortages, other cost pressures and slower consumer demand.
Workers in Scotland earning more than £28,000 pays more than if they lived south of the border, with the gap widening from April following the introduction of a 45% tax band on earnings between £75,000 and £125,140 and increases in the top rate from 47% to 48%. The gap could widen further if the Chancellor goes ahead with tax cuts in his 6 March budget.
Marc Crothall, chief executive of the Scottish Tourism Alliance, told MPs on Holyrood’s economy and fair work committee, that the impact of higher income tax on his sector was putting Scotland at a “competitive disadvantage”.
While the hospitality sector generally employs staff in lower wage bands, Mr Crothall said managers within tourism and hospitality firms were often pushed into the higher rates.
“We are now having to pay more than the average salary that would be offered in the UK to compensate for the higher tax bands,” he said.
“It is a live conversation within the industry among colleagues who fall into that new banding.”
Leon Thompson, Scotland director at UKHospitality, said: “If you look at the wage rises that have been taking place there are a lot of mid-ranking and senior chefs who are in those upper brackets for tax. That is where a lot of hospitality businesses are really struggling to get those people coming.
“Anecdotally this is something that is cropping up during the interview process when people are coming to Scotland.”
Committee convener Claire Baker asked why the sector still needs government support as venues become busier.
Mr Thompson replied: “Whilst venues may be busy, the costs have just gone through the roof. Whilst turnover is high, there’s little profit for businesses that are making any profit at all.”
MPs were warned that the Scottish government’s refusal to pass on 75% business rates relief available in England would threaten the solvency of some firms.
Colin Wilkinson, managing director of the Scottish Licensed Trade Association, said as many as 130 bars could close their doors this year because they were not viable.
He said the reliefs on offer in England would be worth about £15,000 to a pub, £30,000 to a medium hotel and up to £100,000 for a larger hospitality operator.
“Rates relief would have made a huge difference to a lot of our small and independent members,” he said.
He added that hospitality firms had already paid for the cost of the failed deposit return scheme, and faced further pressures from the tourism tax and possible alcohol advertising restrictions. ]
“These kind of things don’t help the industry – our sector is fighting for its survival,” he said.