Brexit – Is there a silver lining?

6th of August, 2019 | Posted in Hotel News Email Article | Print Article

Willie Macleod, Executive Director Scotland of UK Hospitality, outlines some of the issues that are heading the way of the hospitality industry should there be a No-Deal Brexit.

The prospect of a no-deal Brexit seems more real in recent days than at any time since the EU referendum in June 2016. The Johnson government is clearly working on the assumption of no-deal by 31 October. The top-line implications of this are immediate withdrawal from the EU, adoption of World Trade Organisation rules for trade with European and other countries, negotiation of free-trade deals and the prospect of physical checks on people and goods at UK borders. Brexit itself creates issues for hospitality businesses, not least through the ending of free movement of people.

Immigration / Labour Market

Much of the growth in the labour-intensive and service-oriented hospitality and tourism industry over the last decade or so has been supported by the ready inflow of staff from EU countries. Sustaining this growth in future is at severe risk; there is already a Brexit-related staffing crisis among hospitality businesses in Scotland (where around 18% of staff hail from EU countries) as fewer EU nationals seem willing to come to the UK, more EU citizens decide to return home and the industry wrestles to attract local staff in a very tight labour market.


Brexit induced immigration policy is far from straightforward and is, quite simply, becoming more complex and confusing. One factor common to Brexit, whether deal or no-deal, will be the ending of free movement of EU nationals to work in the UK. Technically this would take effect from Brexit date (31 March 2019 and now, presumably, 31 October) but with a transition period to 31 December 2020 during which free movement would, in effect, continue.


Settled Status, which requires 5 years residence for eligibility is open to EU, EEA and Swiss nationals. Although this qualification can be ‘accrued’ during the transition period for those who have been in the UK for less than 5 years. To date, around a third of eligible individuals have applied.
UK Hospitality is a member of the Home Office Employers’ Advisory Group which is discussing future immigration policy. It is thought unlikely that a new system will emerge before January 2021.


It seems that future policy maybe reflective of the current Tier 2 visa arrangement for non-EU/EEA nationals which involves a costly, complex and demanding sponsorship arrangement. Policy is likely to be influenced by advice to the Government by the Migration Advisory Committee (MAC), and will:
• be skills based, providing no preferential treatment for EU citizens;
• favour workers who can demonstrate minimum qualifications to Higher / A-level equivalent;
• apply a starting salary threshold of £30,000 (which MAC has been asked to review by the Home Office); provide a maximum period of 12 months for unskilled / lower skilled workers to stay in the UK with a cooling-off period of the same duration in which they must leave the country.


This will present difficulties for hospitality employers as, indeed, does the Shortage Occupation List (SOL) compiled by MAC which only recognises certain categories of chefs as being in short supply and potentially eligible for a visa if salarey thrshold and other conditions are met.


The arrival of the Johnson government leaves immigration policy in an even greater state of uncertainty, especially as the Prime Minister and the new Home Secretary have spoken of an Australian-type points-based system (which MAC is to be appointed to review) which prioritises highly skilled and qualified workers covered by SOL and is likely to disallow the so-called lesser / unskilled staff which hospitality desperately needs. The government-proposed solution to any resultant shortfall in workers anticipates businesses investing in training to improve domestic labour market skills and in adoption of new technologies. [The recent announcement of a Sector Deal for hospitality and tourism may provide part of the solution but this may not be easy to achieve given historically low unemployment rates and limitations on the ability to apply new technologies or automate services and processes in hospitality].

Tourism and Transport

Travel disruption could play a key role in the fortunes of the tourism sector in the event of no-deal. The UK is part of the European Common Aviation Area (ECAA), which allows UK-based airlines to fly freely within a zone covering the EU and some neighbouring countries. When the UK leaves the EU, it will cease to be part of the ECAA. However, the European Commission has committed to a contingency agreement for aviation until the end of December 2019. It is important for the visitor economy that this is addressed as a matter of urgency post-Brexit.


For Scotland, the top 3 EU inbound markets comprise Germany, France and Poland – collectively, Europe accounted for 64% of international travellers to the country in 2018, up from 59% in the previous year. Some of this growth is likely to be attributable to the weakness of Sterling against the Euro. It would be wrong, however, to take the European market for granted and the future sustainability of Scotland as a destination will be influenced by continued, positive perceptions of the UK / Scotland and the continuing absence of restrictions on the ability, and frequency, of EU citizens to visit the UK for leisure and business purposes.


Sterling’s weakness could mean that UK tourism inflows increase (if there is no travel disruption). Oxford Economics estimate that in a no-deal scenario, inflows could be 4% higher provided there is no travel disruption. However if an economic downturn ensues it has been estimated that UK travel and tourism GDP couldbe 2% lower than baseline forecasts for 2020. Hospitality businesses which deal with agents and tour operators based in the EU should consider whether there are implications for future business levels.

Supply chains


If no-deal is the outcome, the UK would probably revert to World Trade Organisation (WTO) rules. These applytariffs on and quotas for the import and export of goods. The UK already does this, but as a member of the EU, with several countries. These agreements would be void in the event of no-deal. In March the Government announced its tariff policy in the event of a no-deal Brexit. This is intended to be a short-term measure with a consultation to be held on long term tariff policy. The policy set out will see tariffs on approximately 95% of import lines set at 0% for a temporary period of up to 12 months. Based on average 2017 to 2018 trade flows, this amounts to approximately 87% of imports by value. The hospitality industry is particularly vulnerable to any restrictions / cost increases on imports of food, beverages and items such as catering equipment and spare parts. Businesses should have a dialogue with suppliers to establish what their exposure to EU goods may be.


UKH has been meeting with DEFRA and attending Downing Street meetings regarding importing and exporting after Brexit. These meetings have outlined the key shortages that are expected in the event of no-deal. It is likely that in the aftermath of a no-deal Brexit food-based businesses may be forced to make menu choices based on the availability of food supplies and must be prepared to do so.

Currency


For the past two years Sterling has largely ignored economic data and swung according to political developments or news relating to Brexit negotiations. Consensus is that in the short to medium term the value of Sterling could drop sharply in value (-5 to -10%) leading to increased prices of imported goods. Businesses should perhaps anticipate this though some impact may already be factored into current Sterling values. For restaurants and food-based companies this will likely hit domestic footfall in their businesses. The other side to this is that a weaker pound will probably serve to increase inbound tourism to the UK.

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Hotel Magazine Scotland News Team

Hotel Magazine Scotland News Team

Hotel Scotland is a new publication (2017) from the publishers of DRAM - Scotland's leading on-trade magazine. Hotel Scotland is a newsy magazine which covers all aspects of the industry in Scotland. From who's who, to industry issues and refurbishments.
Hotel Magazine Scotland News Team

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