Economy and Fair Work Committee

Meeting date: Wednesday, October 5, 2022

Official Report 686KB pdf

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Pre-budget Scrutiny 2023-24

Our next item of business is an evidence session as part of the committee’s pre-budget scrutiny work. The purpose of this session is to inform our scrutiny with the aim of influencing the budget before spending priorities for the next financial year are set. Members will be aware that there will be a budget statement the first week back after October recess. The focus of today’s session is the cost crisis and its impact on the tourism and hospitality industries.

I welcome Marc Crothall, who is the chief executive officer of Scottish Tourism Alliance; Bryan Simpson, who is industrial organiser at Unite hospitality; and Leon Thompson, who is executive director of UKHospitality Scotland.

A similar panel was before us in advance of last year’s budget and the main call that we had at that time was for investment in stage 2 of the tourism recovery fund. The committee supported that call and the Government was sympathetic to it. That seems like a distant memory as we face a cost of living crisis and a rise in business costs. The sector is under pressure. Are we facing a bleaker situation as we go into this winter than we did coming out of the Covid pandemic? I will come to Marc Crothall first.

Good morning. From a business point of view, everybody would say that we are in a worse place now than we were last year, without question. The impact of the cost rises affecting business, with the uncertainty of how to navigate through the challenges that are in front of us—some of those are still relatively unknown, and things are confused, as we have seen over the past few days—are causing concern, not the least of which is how to protect and invest in business to be competitive in the future, how to recover strongly and be sustainable and, of course, how to maintain the workforce that is in short supply anyway.

It is tough, to say the least. We are going into the winter months when many businesses in the sector traditionally close. How will they bridge the gap and repay not just the direct energy costs but some of what they have borrowed or the sizeable debt that many of them have taken on? So, yes, it is worse than Covid in terms of survival, currently.

The flipside of that is that you have a consumer base that is equally challenged with discretionary spend and how it might choose to prioritise that. The uncertainties of the leisure spend in particular over the coming weeks and months of the winter period will put things at risk. I am sure that Leon Thompson can pick up on some of the feedback that we are getting from the hotel sector in particular.

The STA’s submission mentions a survey, and you say that you are

“gravely concerned that some businesses might never reopen again”.

Is there a higher risk of that happening this year than there was last year?

11:15  

We have already seen businesses take the decision to repurpose to ensure their viability by changing from being a hotel to becoming a residential property. I think that it was last week when BBC News reported on a number of properties in and around the Loch Lomond national park area where the smaller, mainly lifestyle hotel businesses have decided that, to try to counter the costs and everything else that is on the horizon, it is better to come out of the sector. There has also been a shift in the self-catering sector as a result of the short-term let licensing implementation process. Again, many of those operators have decided to come out of the marketplace.

Other operators have benefited from some of the international footfall that we have had, which has been hugely welcome, but if you speak to the inbound element of the tourism sector in particular, its challenges have been to do with the number of breaks in the supply chain, because some operators have disappeared and the skill sets and provisions that they offered are no longer there.

I will come to Leon Thompson. Marc Crothall has outlined some of the key issues that the committee wants to explore, First, however, it would be helpful if you could reflect on where we are this year compared with last year.

Good morning and thanks for the invitation to be here today. As we came out of Covid, nobody could have imagined that we would be facing a challenge of this scale after we felt that the worst was behind us. As Marc Crothall has said, the challenges that face businesses now are much more significant than those that they faced as a result of the pandemic. Businesses have been trying to move towards recovery and back to profitability, but we know from our surveys that, even as recently as the summer, only about one third of businesses were saying that they were trading at a profitable level. I suspect that that figure has declined in the past month or two.

Businesses are carrying debt because of the pandemic and now they face the challenge of the rising costs of business. On top of that is the cost of living crisis, which the public is facing as well. Dealing with those two things together is completely unsustainable for many businesses.

A few months ago, we were talking about inflation being a massive problem. That problem remains, particularly food and drink inflation. Then the increases in energy costs came along, which dwarfed the problems that the businesses were experiencing. The support from the UK Government is incredibly welcome, but many businesses are still paying 200 per cent or 300 per cent more on their bills than they were even a few months ago. Obviously, that is a temporary fix for six months and we need to continue conversations with the UK Government about what the targeted support will look like for hospitality beyond that.

Businesses are really struggling. They are trying to manage their costs, while seeing consumer confidence plummeting. Members are saying that bookings are incredibly low for autumn and winter. We are moving towards Christmas, which is a massively important period for hospitality businesses. Some businesses might make only about one third of the money over the festive period than they would during normal times. Right now, there is not much demand for Christmas breaks, parties and those sorts of things, and a lot of businesses are scaling back their offer.

Many businesses are considering whether they will stay open over autumn and winter, because they know how expensive it will be to do so and they are not convinced that they will see the number of bookings coming through that they need. Businesses are making some very difficult decisions at the moment. These are businesses that ordinarily would trade all year round, and if they close temporarily—I hope—over the autumn and winter months, that is detrimental to the quality of the experience for the visitors who are around. Those businesses will still have costs to bear, including business rates and loans to pack back, but they will not have any revenue at all. It is a very difficult and challenging time for hospitality right now.

In comparison with last year, quite a bit of support of different kinds went into the sector during the pandemic. At that time, the sector was closed, but furlough, business rates relief and other packages were available. You consider this crisis to be more significant, but is the support comparable in any way?

No, not at all. Beyond the energy support, nothing has been announced for business. We welcomed the reversal of the national insurance increase, which will give an average hospitality business another £10,000 or so back. That is something; they can invest that back into the business. However, that does not really go anywhere when you look at the increases in the costs that businesses are contending with.

UKHospitality is continuing to ask the UK Government to revisit VAT. We feel that it needs to be lowered again; we would like to see it down to 10 per cent. That would help businesses in the short and medium term. We would also like to see additional business rates relief. From a Scotland perspective, if that can be secured and that comes through in the UK Government’s budget in November, I would hope that there will be some Barnett consequentials that would benefit my members here and the wider hospitality sector.

Those are the kinds of areas of support that businesses need. However, they need that now; they cannot wait for another six or eight weeks to hear whether there will be more support. As things stand, it is very difficult—if not impossible—for viable businesses to make any sensible business decisions about what they are going to do. A great many businesses find themselves in that position.

I will bring in Bryan Simpson. Members will have a number of questions that are directed to you, but I first ask that you reflect on Leon Thompson’s comments on businesses making decisions about closing over the winter. Obviously, they employ people. What will the impact of such uncertainty in the sector be on people who work in it?

Leon Thompson and Marc Crothall are absolutely right. Since March, we have seen a huge reduction in footfall, which is obviously impacting not only businesses and employers but workers.

We have been surveying our members. A huge proportion of them are seeing a cut in their hours. In some cases, pubs and bars in particular are closing. Big Hospitality has done a survey that found that seven out of 10 pubs were on the brink and would not survive Christmas. Pubs, bars and some restaurants seem to be most impacted. Hotels are impacted as well but less so because of the international footfall that Marc Crothall mentioned earlier.

The impact on workers is a double whammy, because they are consumers, too. They are being hit with energy price rises. In my view, there is no price cap on energy—paying £2,500 is impossible for most of our members, whose average wage is between £18,000 and £21,000 a year. The rises immediately put them in energy poverty as they cannot afford to pay those bills.

It is a double whammy because they are being hit by the energy price rises and the cost of living crisis as citizens and because their businesses can no longer afford to retain them.

I will qualify that. We believe that a lot of large businesses—multinationals, for example—are taking advantage of the cost of living crisis and cutting staff numbers or at least cutting their hours. I am absolutely sure that a lot of small businesses that make up a large proportion of the employers cannot do anything else but cut hours. However, we would still challenge that. We campaign against hours being cut, especially if there is a contractual obligation. However, bearing in mind that 20 per cent of the sector’s workforce are still on zero-hours contracts and they have no contractual right to hours, we are seeing their hours being cut back to as little as zero or four hours a week, which is just completely unsustainable.

Thank you. I am going to move over to members. I remind members that it would be helpful if they direct the question to the member of the panel they wish to hear from. You do not have to invite all members to speak if you do not wish to—I am thinking about the time for the meeting.

I will take your advice and I will start with Leon Thompson. What all of you have described is a situation where costs are going up and there are fewer customers—I see that Marc Crothall wants in. I have not even asked the question.

I was just going to say that there has been demand, and the international demand has been very welcome. It is certainly not on the scale that we need, to be clear on that front. The domestic market has come but it has been very last-minute and it has been difficult to plan around. The trouble is the balance of the workforce being in shorter supply and costs going up, limiting the capacity of a property to drive the necessary yield that it needs to pay the bills. The demand is now definitely, without question, falling off a cliff and that is the challenge as we go into the winter.

Leon Thompson, can you explain what the main cost increases that businesses are dealing with are? We know about energy, but are there other things as well?

They are right across the board. With food and drink, we have seen inflation of up to 40 per cent on some items. There is wage inflation as well: businesses have had to pay more in a tight labour market to secure workers and to retain workforce. ONS put out some statistics that showed that the hospitality sector is paying 15 per cent more on wages than it was before. We are seeing interest rates going up as well. Businesses that are carrying debt, either as a result of Covid or because they have been investing in their businesses, now have to pay more on that borrowing. The costs are huge. Insurance is up as well and some businesses have been struggling to secure insurance. The energy increases come on top of all of that.

You said that the measures by the UK Government on energy were welcome but were probably not enough. Is there anything more that either of our Governments could be doing?

I highlight that we are keen for the UK Government to bring down the VAT rate. We think that that would provide immediate support and, similarly, we would like increased support around business rates relief. Businesses in England are currently enjoying 50 per cent rate relief, albeit with caps. We would certainly like to see that replicated in Scotland as an absolute minimum. We understand the financial challenges that the Scottish Government has at the moment, but that is one of the levers that is there for ministers. If we can secure more money for business support from the UK Government, we would certainly hope to see the Barnett consequentials being used to support our businesses.

You are all painting a pretty grim picture. Are you able to put any figures on that for Scotland? Bryan Simpson said that seven out of 10 pubs are on the brink. “On the brink” can mean anything, but are there any statistics that you can give us? I direct that to whoever can answer it.

A recent survey that has been done by the Scottish Licensed Trade Association across 600 pubs, I think, said that one out of 10 will shut for the winter and four out of 10 will reduce their hours significantly over the winter period—that was off the press last week. We have a snapshot survey out at the moment around the impact of energy following the announcements from the UK Government last week, because we want to get a feel and a sense of what that will mean for business closure in the short term. Let us be frank: not every business has benefited. Anyone who has signed up to a contract before 1 April will not see that benefit. The chair of the Scottish Tourism Alliance, Stephen Leckie, is one of those who will not qualify for that VAT across his whole estate, so it is not a broad-brush approach. The uncertainty of not knowing where you are is what is causing the challenge.

11:30  

For us, in the longer term, the question is this: how do we stay competitive? We have to have investment into our assets if we are to be competitive on a global stage, and our ability not only to invest in basic maintenance and repair of a property, but also to be appealing and attractive to that international audience that has the pound or the dollar to spend, is really important.

The business rates relief—we got the £27,000 cap in the first quarter of the year—was welcome, but a place such as Crieff Hydro hotel, for example, has a cost base of £25,000 at that lowest level, so the relief does not really touch the sides when it comes to having a real impact on a broader base.

We have to be able to find a way to invest for the future in infrastructure, the property, the asset and the people.

I will put this to Marc Crothall first and then to Leon Thompson, if he wants to come in. It might seem to be a somewhat leading question. The STA has called for a pause on regulations that put increasing burdens on businesses at this time. Do you want to outline some of those regulations?

Thanks for the question. We were invited collectively to enter into a conversation about proposals for pausing or taking off the table existing, pending and new regulation. One of those pieces of regulation was the implementation and collection of the short-term licensing fee structure. Fiona Campbell herself had said it is not about taking the policy off the table altogether; it is about pausing that investment.

Another one was the deposit return scheme. I think that, for many, it is still a bit of an unknown, but it requires a sizeable up-front investment by operators of different shapes and sizes across the length and breadth of the country. Could that up-front investment be paused as well? There was a suggestion around the implementation of the 20p supplement on disposable cups from coffee shops and so on, which was largely to try to deflect a pause in consumer purchasing. It represents another cost on top.

The transient visitor levy has been committed to in the programme for government. We think that the sentiment element of that will cause some unnecessary damage to the current environment when we are trying to recover. The concerns that we have with the TVL are about staying competitive in a tax environment that is already not in parallel or better than anyone else. Also, as we have seen, some variables have arrived as a result of the short-term let licensing scheme, and we do not have a lot of confidence that the same would not apply.

Can I come in on that? I live in Orkney and I know a number of people who run bed and breakfasts, some of whom are getting out of the sector. There has been a lot of confusion about the processes. There has been a disparity on cost. The proposal is meant to be revenue neutral, but quite clearly certain councils are charging more than others.

First, do you think that councils will be able to deliver the scheme, given the procedures and checks that have to take place by the deadlines? Also, what are your concerns for the sector? There being fewer B and Bs means fewer people being able to find accommodation. We already have problems with hotels, particularly in the Highlands and Islands, as we have experienced over the summer. Will that mean that there is less available space for people to come and spend money locally, at a time when tourism will be key for many of those communities?

On the first part of your question, about the ability of a local authority to deliver on administration of the scheme and the disparity in prices, from recollection in Orkney it is about £208 and Edinburgh it is about £5,100—admittedly that is for a larger property. I think that, on Saturday, there were only 19 local authorities that were already in the collection process or had opened the door. The publication of the guidance was only issued at 11.57 on 30 September for a start on 1 October.

There will be a surge. Those operators who are currently legitimate and want to trade and take bookings for surety will apply now, and I guess that what happens will depend on how the local authority administrations manage that process. There is a big question around that, as well.

There is already evidence, which the Association of Scotland’s Self-Caterers have reported on, of businesses choosing not to trade. I think that probably some of it is a bit too much for them, but we have to have a proposition and a blend of offering. We have some great hotel assets and some new builds as well, so there is plenty there, but if we do not have the right balance it will be a stretch to attract the right market. The fringe festival in Edinburgh highlighted concerns around a shortfall in accommodation at key times of the year. I think that the Scottish Rugby Union also has a view on that.

The situation is difficult, and I guess that cost neutrality is again a question. That goes back to my comments around the TVL process, should it arrive.

I agree with what you have heard. UKHospitality is very involved in the deposit return scheme, in trying to get members ready for it going live on 16 August next year. It is a very ambitious scheme and will completely change the way that we recycle in Scotland. There is a lot of concern about the length of time that remains to make the scheme operable. There is perhaps a sense of people hoping for the best on this, but we could go live next August with the scheme not being completely bolted down.

One of the big risks is lack of awareness among businesses at the moment, and there are cost implications for businesses. Some of our larger members that I have been speaking to say that it will take them six months, end-to-end, for their project team to get everything ready across all the sites that they own and operate. At the smaller scale, there are businesses that are concerned about where they will keep all this valuable empty stock until it is collected, because it is a significant loss to the business if items go missing.

There are some real difficulties and challenges there and, because of everything else that businesses are facing at the moment, many owners just do not have the head space to think through what they need from that.

I was on a call with Lorna Slater last week, again outlining these issues but saying that we are committed to recycling and the net zero agenda, and that we will continue to promote the scheme to our members so that they are ready, but it is coming down the track really quickly and there are still too many businesses that do not know enough about it and just cannot give the necessary head space to the scheme. That is a problem.

Marc Crothall has highlighted the visitor levy as well. There was some dismay when we saw that in the programme for government. Officials and ministers are very clear that it will not appear until 2026 at the earliest but, as Marc Crothall has highlighted, we have got a sentiment issue there. Once all this starts to go out into the public domain, people will be looking at their newspapers and deciding not to come to Edinburgh or not to come to Scotland because there is a tourist tax in place. While Edinburgh might want to be the first city in the UK to introduce a tourist tax, it is not always best to go first. I think that we could have some significant challenges with sentiment and perception at a time when people are looking for value for money more than ever. That is an issue.

Marc Crothall highlighted single-use cups and so on. It is unclear when that measure might appear, but, again, it is something else that businesses will have to grapple with and will represent another cost for somebody.

There is the health agenda as well. There is calorie labelling, which has been introduced in England and will likely be introduced in Scotland at some point in the next year or two, and also activity around nutrition and the promotion of foods with high salt, fat and sugar content, which will impact on hospitality businesses too.

The weight of all of that is causing a big burden, but there are some very real costs to businesses as well. I was speaking to Edinburgh hotels about the visitor levy and what that would mean. They will have set-up costs to manage that and information technology costs around changing systems. Some of these will be one-off costs and some will be recurring costs. There are also concerns about credit card charges on transactions and so on.

All of those things need to be discussed and bottomed out but, as things stand now, there is no financial recompense being discussed for businesses who have to shoulder those costs. Ultimately, it will be the visitor who pays the levy for the transaction, but there are some business costs there.

There is an issue that I want to follow up on before I bring in Colin Beattie. You mentioned that the national insurance cut will be worth about £10,000 a year. The UK Government has sold that change by saying that it is

“committed to a low-tax, high-growth economy”

and to ensuring that businesses have

“the right conditions to drive investment, growth and productivity.”

It has stated that,

“As a result of this tax cut, businesses will have more money to invest in becoming more productive, pay higher wages, create more jobs and support the overall growth of the UK economy.”

However, it does not appear that that £10,000 will be useful for that this year.

It will go towards filling the gaps that are there.

I will direct my first question to Bryan Simpson. We are all aware of the UK Government’s announcement on support for energy costs. Witnesses have already commented that we are seeing an effort that is far short of what the Covid exercise was in a similar crisis. How confident are you that the sector will be able to support its workers through the cost of living crisis?

We are not confident at all, if we go by the way in which hospitality workers in particular were treated during the pandemic, when there were enormous job losses in the sector. According to Fourth, which is the most-used human resources platform in the industry, the workforce shrank by 26 per cent between 2020 and 2021, going into 2022. That 26 per cent would equate to 58,000 job losses in the hospitality industry in Scotland. My colleagues have pointed out why that could be eclipsed by the cost of living crisis: we have a toxic combination of price rises for the workers and for the businesses that employ them.

The situation is cataclysmic. As I said, we have already seen an impact over the past six months with a reduction in hours. Staff are getting fewer tips because of the shortfall in customers and because people are not paying by cash. For a number of reasons, workers are not getting the tips that they used to rely on. All that is having a knock-on effect on workers whose average wage is £19,000 or £20,000 a year and who cannot afford the £2,500 price cap. It is a double whammy. I hope that that answers your question.

You mentioned that, during Covid, there was a drop of about 26 per cent in the number of people employed in the hospitality industry. Was there a pick-up post-Covid? In other words, did the employment level come back up?

It did. If I can be frank, a lot of that happened through fire and rehire. A lot of multinational hotels terminated their employees’ contracts during the pandemic, despite the job retention scheme. There was a large hotel chain—which shall remain nameless for the purposes of this meeting—that terminated the contracts of 95 per cent of its workforce in Glasgow and Edinburgh at three flagship hotels, and then re-engaged those workers three months later. By the way, it terminated their contracts using public funding for their redundancy packages and then re-engaged them on lesser terms.

Obviously, that does not apply to all employers. There are small employers out there that are genuinely unable to retain their staff but, during the pandemic, a lot of multinational employers that absolutely could have afforded to keep their staff on terminated their contracts and then re-engaged them.

The numbers will have gone up. I do not have the facts on how many staff have been re-engaged. From our campaign against fire and rehire, we estimate that around 14,000 of those 58,000 were re-engaged, or we campaigned for them to be re-engaged, either on furlough or on 100 per cent of their wages.

11:45  

Marc Crothall, I put the same question to you. How will the sector be able to support its workers through the cost of living crisis? How capable is the industry of doing that?

That is a challenge. Again, it is a question of making sure that the business still exists so that it can continue to provide employment for the longer term. To pick up on Bryan Simpson’s point, I note that a number of the 58,000 workers whom he mentioned were European workers who returned to Europe, so they might have taken the furlough payment and not come back into the marketplace.

There are good efforts and good examples of employers who are doing their utmost and being very creative in trying to retain staff. On the west coast of Scotland, there is a hotel company that I know is contributing to the employees’ home domestic fuel bills as part of the benefits package, over and above meals and accommodation and everything else that they get, but not everybody can afford to do that. The risk comes where we are having to look at a balance of closure. Businesses will do the right thing through a process of having to let the employee go but, ultimately, they would love to stay open and trade and keep that employee in situ, because so many of them have invested significantly in the employee skills programme over the course of the past two years.

We have had some great funding from the Scottish Government to run the tourism and hospitality talent programme, which I think 3,500 colleagues have gone through. It is a challenge if they are not able to stay in employment, but I have heard from well-known businesses in the central belt that have said that some employees simply could not afford to get to work and they had to give up their contract. It was not the hotel dismissing them in any way, shape or form; it was the employee making the decision that they could not afford to pay for the fuel costs to drive to and from work. That is in certain parts of the country, not necessarily in Scotland as a whole.

We need to invest in our future workforce and grow it, so that we can service the demand and deliver on the expectation of the future customer.

Bryan Simpson has mentioned a couple of times workers moving on to reduced hours. Do you recognise that as an issue at the moment?

Can I suggest that we invite Leon Thompson to answer that question, as that will mean that all members of the panel will have had an opportunity to answer before we move on to Maggie Chapman?

Okay. The question was for Marc Crothall, but perhaps Leon Thompson can answer it.

I am happy to answer it. For a number of months, businesses have been scaling back their operations, whether by limiting the service that they provide or closing their doors for one or two days a week. The issue is one that they have been grappling with for quite some time. I know businesses that have been trying to ensure that the workers they have are still getting the hours, or close to the hours, that they need. However, when businesses are in a precarious situation, there is only so much that they can do.

As Marc Crothall has highlighted, there are businesses that are looking at what else they can do to support their staff. There are good examples of businesses that are providing extra time off for staff so that they can benefit from wellness days. There are also businesses that are looking at how they can be more imaginative with the shift patterns and so on, to ensure that there is still work there for the people they employ.

One of the challenges that we are facing is that, because businesses are in a difficult situation at the moment, workers are beginning to move away from hospitality to look for other types of employment. In addition, some of the costs that workers are facing now, particularly in rural areas, mean that it is quite a challenge and a financial stretch for them to get to their place of employment.

In my experience, many hospitality businesses seem to be crying out for staff—they are desperate for staff with the skills to fill key jobs—yet, on the other side of the coin, we hear that there has been a reduction of hours in some areas of the hospitality sector. How does that work out?

Can I ask for a brief response?

Sure. It is a very broad sector. We need to break it down by geography, because the challenges that some businesses are facing as regards staffing shortages and levels of demand are not necessarily faced by all businesses. However, the general picture is one of diminishing demand and, therefore, fewer hours available.

Thank you for your comments so far. I will continue on the same theme as Colin Beattie’s questions on job security and job availability. We have heard about the tension in respect of workers wanting hours but shifts not being available. Leon Thompson said that the sector is diverse and that there are geographical and other differences. How is your organisation engaging with your members? What are you focusing on to deal with differences relating to geography and marginality? Obviously, job security does not tell us everything that we need to know.

We see the workforce as being absolutely critical to the ambitions of the sector. We came out of the pandemic and, as Bryan Simpson has highlighted, we lost a lot of the workforce. A few weeks ago, there were still very high vacancy rates across the sector. We are trying to encourage businesses to pay more in order to attract and recruit staff, and to offer more flexibility around working. There are also issues of productivity: businesses that are struggling and find that they need fewer staff could change how they work but still provide job security for their workforce.

In the longer term, when we come through the current set of challenges we will need access to a skilled workforce, so that businesses can develop and grow and play their full part in the economy of the country again. However, just now it is a real challenge for SMEs in particular to keep a full complement of staff when they are not seeing demand coming through from consumers.

I will move to Marc Crothall, with a similar line of questioning. Leon Thompson has mentioned geographical variations. Can you pick up on variations in size and the differences between what larger organisations are doing and what smaller businesses are doing, specifically on job security? What does that mean in terms of targeted support to ensure job security—not only through the coming season, which will be very difficult, but beyond it?

I have a couple of things to say in coming back on what Leon Thompson said. In respect of the city centres, we still have huge numbers of people working from home, so there is a culture now of not going out on to the high street. A huge number of small hospitality operators—pubs, coffee shops and so on—have seen a massive downturn in trade, which has resulted in their having to cut their cloth accordingly, in respect of workers’ hours. That is another challenge that we face; it is important to have vibrancy in city centres.

There is lots of good activity at the local level, through local hotel associations working together. Inverness is a great example of a place where there are not a lot of people there to come into the industry, so businesses have gone into schools and have worked as a collective to bring raw young talent with no experience into businesses to train them, to give them on-the-job learning experience and to create a community among the workforce.

There is also a lot more being done by Springboard and the broader tourism skills group. We have the apprenticeship in hospitality Scotland programme, which is a great initiative in which a number of large and small operators are supporting apprentices into their business and using that generation of the workforce to be advocates.

We have also seen, with the cost of living crisis, older workers looking for a second income, so we need to position opportunities in employment for the older workforce. As Leon Thompson said earlier, many operators are changing their modus operandi in terms of shift patterns; we are seeing the old traditional ways of working going, and businesses are adapting to the modern day way of working.

Hoteliers Charter was launched two years ago during Covid to try to present the industry in a much better light, and to highlight opportunities and promote the values of fair work within the business.

I said to Bryan Simpson earlier that on 17 October you will see a UK-wide campaign called “Hospitality Rising” being launched. That has raised nearly £850,000 worth of private sector money from operators to change the perception of the industry and to make the marketing campaign a bit more cool and more heavily targeted at people in the under-30 age bracket. That is the industry taking ownership; small and medium-sized operators are very much part and parcel of that.

I will come to Bryan Simpson and ask a little bit about what else Unite is looking for from employers. We have heard about paying appropriately, offering flexibility and so on. What other things could employers look at? What discussions are you having with employers about attracting and retaining people in hospitality, apart from issues around job security? Finally, what kinds of things—this is part of our pre-budget scrutiny—should we require as part of our budget discussions?

Job security, particularly in this cost of living crisis, is the number 1 priority for Unite. It is our top priority to ensure that there are well-paid and contractually secure unionised jobs throughout hospitality. That is our modus operandi. We are more than happy, as I said to Marc Crothall earlier, to work with the industry to drive up standards, because we have a vested interest.

Specifically we have our fair hospitality charter, which, I am sure, chimes in a lot of ways with what Hoteliers Charter is doing. The reforms are really simple, and include things like paying the real living wage. It is basically the Scottish business pledge: paying the real living wage; ensuring a huge reduction, if not complete removal, of zero-hours contracts; providing proactive sexual harassment policies to protect women workers; and providing transport home after 11 o’clock at night so that people do not have to pay the £12 that they have earned in tips to pay for a taxi home.

Those are all things that multinational employers in particular can adopt at quite low cost. I am not here to make the benefit points for businesses, but I hope that my colleagues will agree that we would reduce turnover by driving up standards and, without being elitist about it, keeping the most highly skilled workers.

We surveyed over 800 chefs about a year ago, and 48 per cent of them said that they had already left the industry or were about to leave the industry. Again, without wishing to be elitist, they are the most highly skilled and highly trained employees in the industry. Almost 50 per cent of them were leaving. I guess that the figure might have gone up since then; we are just about to get the results of this year’s survey.

12:00  

On specifically what the Scottish Government can do with the budget, we need a another furlough scheme. We need a scheme that will protect workers from the cost of living crisis—possibly with mitigation through Barnett consequentials. I am not an economist, but I know that any amount of money that is given directly to businesses or directly to workers needs to be conditional; we cannot have a situation in which huge multinational employers receive hundreds of thousands of pounds in tax breaks or whatever, but are still allowed to fire and rehire. Public money should be conditional; it should be conditional on employers signing the Scottish business pledge. For any money that is given directly to businesses, there must be a conditionality clause that says, “You must pay the living wage and you must retain your workers if you are getting £120,000 in tax breaks or direct financial support.” For me, that is an absolute necessity.

I will wave this document around because somebody asked me to. It says that among the most successful interventions and support that we got from the Scottish Government during Covid was money to support the tourism and hospitality talent programme. That came at a time in the pandemic when many people were out of work and mental health problems were at the highest. We need to continue to invest in and upskill a workforce that has shrunk, to say the least, and will take time to recover.

We strongly recommend on-going investment in skills, so that if there is temporary displacement, or whatever, of an employee, there is a place where they can go and continue to further develop their skill sets. We have a shortage of skills in certain areas, but at the same time there is a proven mechanism that has delivered very positive responses. I think that the 3,500 people who have been through it would be strong advocates for there being more of the same.

Good afternoon. I will pick up the point about labour and skill shortages. For some time now, everywhere I go to speak to businesses I am told that they cannot recruit and that there is a huge labour and skills shortage. Today we are being told that businesses are cutting staff and cutting and restricting hours. There is almost a contradiction in that; the situation is clearly more complex than there just being a labour and skills shortage. Is it just that everybody is cutting back?

Can Leon Thompson and Marc Crothall say more about the types of business, the sectors and the geography of the businesses that are laying off staff and cutting hours? What businesses are struggling and are in most need of that support? Some are still saying that they cannot recruit at the moment but want to expand, while clearly others are really struggling.

As we came out of Covid, it was pretty clear that we had a massive shortfall. We were estimating that there would be somewhere in the region of 30,000 vacancies that businesses would be trying to fill across the sector. That has continued and people have gone very far to recruit and retain staff. We have touched on some of the good work that businesses are doing in that space. To some extent, businesses were able to fill the shortages, but the difficulty is that in some parts of the country there is not the working-age population to draw from. That is a major challenge, especially for businesses in rural and coastal locations. That was, obviously, not helped by Brexit.

Businesses were already moving to models in which they were open only some of the time; they were perhaps closing for one or two days or reducing the service that they were offering. Rural hotels, for example, would offer meals and bar service to residents only and would not be open to non-residents. Many businesses are still grappling with the challenges and have grappled with them over the summer, even while there has been demand.

Cities present a different picture. As Marc Crothall said, there is not the amount of footfall and activity in our cities that there was pre-Covid. The business-visitor market has not recovered, but it is crucial for places including Aberdeen and others. While businesses were still trying to find skilled staff, they also did not have the same levels of demand to service.

Where we were in the summer was a mixed picture, but things have moved on massively since then. We are now looking at a situation in which demand is very light, especially for hotels and particularly for those in rural and coastal areas. There will probably be a bit of a drop off there. Cities are still struggling to come back. There will be winter festivals and so on that we hope will attract people to come to visit Scotland. Much of that will be in Edinburgh and other cities. Just now, businesses are not seeing the kind of demand that they need in order to maintain the staffing levels with which they have been operating over the last few months.

Does Marc Crothall want to add anything to that?

On skills specifically, we have lost our language skills set with the departure of our European colleagues; Europe is obviously a big market for us, so we need a blend of cultures in our workforce. We are an international industry and should have a fully multinational workforce to match the needs of customers. Those people are also very important to our home-grown talent, so that they can learn, too. Skills are lacking.

We must not forget the supply chain. If there are breaks in the supply chain we cannot do anything at the front end. There is a need for logistics workers, fruit pickers and all the others that food production businesses have been challenged in recruiting.

I will go back to the development programme. We lost a lot of our middle management—our supervisory staff. In relation to onboarding new raw recruits into the industry, it is very difficult to service guests if we do not have, at supervisory levels, well-placed individuals to onboard recruits into the workplace in the way that we want, such that they stick around and learn. Investment all the way through supervisory management and leadership is key.

We know that we have accommodation challenges in some parts of the country, which limits the opportunity for businesses to retain staff in a downturn. There is a cost associated with that. From the outside looking in, there is uncertainty: the sector’s long-term recovery will not fare well if people are looking at careers in an industry that is potentially susceptible to having to slow down or close.

There is a combination of things, but for us loss of language skills is a massive shortfall. We need to have the immigration situation shifted so that we can get international workers back into the system to service customers and so that our own talent can learn from and engage with them.

I will give an example, from our perspective, of the antidote to the labour shortage. It will come as no surprise to members that we believe that the antidote is to drive up standards. I will use a rural example. We teamed up with a small 40-bedroom hotel in Dunkeld that had really been struggling post-Brexit and then through Covid, to attract anyone. That was not because it had done anything wrong; it had not terminated any staff, and it paid 100 per cent furlough or topped up furlough to 100 per cent of wages during the pandemic, but it was still struggling to retain staff. We teamed up with it and eventually, piece by piece, we got it incrementally to implement the fair hospitality charter. The final thing in that was its paying the real living wage: it started paying £10.50 an hour and within six weeks it had filled its labour shortage. We helped to advertise it. It was top story news on STV, because we want to advertise decent employers.

The employers that are doing the right thing, that are paying the real living wage, that are not terminating people unnecessarily and which are putting in place proactive sexual harassment policies happen to have the lowest turnovers and have been able to fill gaps in employment. That that example is replicated in so many places, particularly in rural Scotland, speaks for itself as the antidote to the shortage.

That is very interesting and really helpful in trying to break down the challenge in labour and supply chains. It is clearly very complex, because, as you mentioned, a lot of businesses are on the brink—especially in hospitality, and even the licensed trade is really struggling. That is having a big impact on your members, who are seeing their hours cut.

You also mentioned that some businesses, particularly large businesses, are very much profiteering from Covid and the cost of living crisis. I know that Unite has done quite a lot of work on that. It has been highlighting that there seems to be price gouging by big businesses whereby they are driving up prices above the supply cost, and that, in turn, is spiralling inflation. Can you say a little bit about the work that you have done on that and about the impact that that is having on the cost of living?

Yes, absolutely. Again, it is not focused just in multinational hotel chains, but that is where we see the biggest examples of that. For example, most accommodation services increased their prices for the 26th UN climate change conference of the parties—COP26—but multinational employers were charging £500 or £600 per room per night, and none of that extra profit was going back to the workforce. We used that price increase as an example in campaigning for higher wages. None of it was trickling down to the workforce.

In fact, the hotel in question—you do not need to do too much research to know which I am talking about; it is a five-star hotel in Glasgow—was charging as much as £700 per night but still had housekeepers cleaning those rooms on £7 and £8 per hour. Some of them are still being paid youth rates, so they were being paid below the minimum wage. Unfortunately, that is perfectly legal. The employer was not breaching the National Minimum Wage Act 1998, but that is an example of the workers who were cleaning those £600, £700 a night rooms having no increase in wages whatsoever. They actually had their hours cut, and some of them had their hours cut to zero—they were put on zero-hours contracts.

That was going on during the pandemic. It is still going on during the cost of living crisis, and, unfortunately, it happens to be the employers who could afford to pay a bit more. We are not talking about small businesses. Yes, there are small businesses that have had to let people go and have cut hours. I cannot speak for every example, but, by and large, the employers who are doing this to the most workers happen to be those with the deepest pockets.

You will probably be aware that there is a fair work inquiry into the hospitality sector, which we are all very involved with, and we are delighted to be part of that.

On the point that Bryan Simpson makes about real living wage employers, there is a vastly increasing number of real living wage employers in the industry now, and probably many more that pay above that but do not necessarily declare themselves. The new Virgin hotel in Edinburgh, which has 225 rooms, is a real living wage employer. Mercat Tours and Rabbie’s Tours are great examples, as their staff are very much in situ, retained, and the attraction is there. One of Scotland’s most well-known hotels in the central belt has also paid way above the base wage.

For the sake of 50p an hour more from another type of business in a different sector, individuals are leaving to chase that money, because they need the extra 50p an hour to combat the rising costs that they face in their own homes. We are all fishing in a small pool and every sector of the economy is chasing that person, and as little as 50p an hour is a point of difference.

I want to ask you about the impact of the cost of living and what the outlook is. Leon Thompson, you touched on the fact that hospitality is a very broad area that covers pubs, restaurants, cafes, travel and tourism businesses as well as entertainment venues. The cost of living crisis is reducing the amount of leisure spend that people have. Is it having the same impact across all the different areas in the hospitality sector or are some benefiting?

12:15  

Again, it is very variable. Pubs and restaurants are seeing a general decline in footfall. They are also seeing a decline in spend, with people spending less money while they are in the venues. People appear to be going out less often than they were before, which is understandable, given that people are looking at their personal finances and working out how they will make things stretch. So, hospitality is very much on the front line when it comes to people scaling back on their discretionary spend.

We are starting to see, through bookings for hotels, that people are scaling back on mini-breaks and weekends away, which have obviously provided a lot of business to hospitality over the years—particularly to hotels and other forms of accommodation. We are starting to see that spend being scaled back as well. It may be that people will continue to ring fence a two-week holiday, which means that it will be absolutely vital that we encourage people to holiday in Scotland—people who are residents and people from the rest of the UK—as well as going after the lucrative markets that Marc Crothall highlighted.

We are seeing a gradual downturn in spend. People still want to have a good experience—they still want to go out—but it is becoming increasingly difficult for businesses to provide that experience at the price point that people are looking for. Therefore, businesses are absorbing a lot of the additional costs themselves at the moment, which is completely unsustainable but it seems that they need to do that to keep their customers coming.

There was a suggestion that, in the summer just past, there was a large increase in the number of staycations; so, people might have been spending less, but there were more of them. That was partially due to the weak pound making foreign holidays more expensive, travel disruption and so on. What impact did staycationers have on businesses, and did Scotland get a share of the estimated £26 million from staycationers?

In Scotland, we are very fortunate in that we are able to attract a variety of visitors from the rest of the UK and internationally as well. The staycation market has been absolutely crucial, particularly over the past few years. The issue is that people spend less when they come, which is a major challenge. Although we had a strong domestic market, we saw a lot of people going out as well. They were prepared to brave the queues at the airports and head out for their two weeks in the sun, particularly after two years of severe travel restrictions.

The domestic market has been and is key. A lot of businesses cannot pivot very easily towards the international market, so they rely on the domestic market. That is their real bread and butter, but it is the international market that is particularly lucrative. As we go further into the cost of living crisis, it is becoming more apparent that the UK is being affected perhaps to a greater extent than other countries. So, we will probably see the domestic market tailing off, particularly for those shorter breaks, but we will see more interest from the international markets, particularly with the pound being weak. It is absolutely vital that we chase those key markets.

I think that the secondary spend is huge for the domestic market. Looking at the broader tourism industry, when people go to visitor attractions or wherever—even resort hotels where they are paying for extras—if they go as a family, one of the reasons that they go there is that their kids want to do X, Y and Z. If, all of a sudden, they cannot do that, they probably have a bigger challenge with their kids biting their head off than with not going there, so people choose not to go.

There is a lot of evidence of people now taking a picnic and driving to the great outdoors, which is fantastic. We are seeing that self-curation of people’s holidays—the bottle of wine has become the glass of wine—and there is competition with other activities for those little extras. There is the return of the football season, for example, and we have had an amazing season of outdoor live music. A lot of that has been thanks to Covid, in some respects—for example, because of the backlog of touring artists. I think that Geoff Ellis sold more than a million tickets to concerts over the summer season. They are not cheap, and people are making a commitment to a bucket-list type of experience, which then puts something else on the back burner. The cost of physically putting petrol in the car and travelling from A to B is also a consideration. The compound effect of all of those things is that people are now thinking twice.

We knew that the outbound tourism spike would happen. The people we captured were probably the ones who saw the chaos in the airports down south and had not made a commitment yet, and, thankfully, we were able to support them. The golf tourism season was phenomenal, with the amount of golf that was played in Scotland, but a lot of that was overhang as well. I do not think that we have had a true picture of the real numbers this year. A survey that the Association of Scotland’s Self-Caterers has published today shows a significant slowdown in bookings, and they are mostly last-minute decisions, with more couples than families as well.

The one market that has come back quite well is the coach market. A lot of tourers from the older community were able to have their confidence about travelling in that way restored, but they do not spend a lot.

How is the industry planning going forward? Does it imagine that the constraints on consumer spending will be on-going for a long time, or is it hoping that the situation will change in a shorter time? What impact will that situation have on the industry?

As a sector, pre-Covid, we were around 65 per cent dependent on the domestic market, anyway, and 35 per cent dependent on the international market. I think that we would all say that it is absolutely critical that we have a much upweighted international footfall and that we capture the opportunity while it is here by increasing the routes and the connectivity. We have seen a pegging back by the middle-eastern carriers. We need to restore that connection, and we obviously need to capitalise on the US market.

The Ukinbound conference took place last week in Aberdeen, and the operators that were there would tell you that there is demand. Scotland is a very attractive destination, but we have to shore up the quality of the assets that are here and make sure that the infrastructure and the transport routes are absolutely rock solid. As you know, Tourism Ireland invested €80 million in its international marketing campaign to make sure that it maintains its profile. There is our competition—it is not so far away from here.

Going back to the convener’s first point, on the recovery, we must invest in growing our international footfall, as the average spend is about £650 for an international tourist compared to £150-odd for someone from the domestic market. That will increase footfall and allow reinvestment in the product.

I will bring in Fiona Hyslop. We now move to questions that are more focused on pre-budget scrutiny, and we will be looking for suggestions about the budget statement in October and the committee’s work in the area.

You have just asked my question, convener.

Sorry.

We are getting down to brass tacks, looking forward to the budget for 2023-24.

Thank you for your written evidence. You have set out clearly what your asks and expectations are. We understand from the Chancellor f the Exchequer that there are likely to be departmental cuts at UK level. We do not know what that will mean for Barnett consequentials—that will depend on which departments are involved—but, this year, we are very likely to face a budget that is tighter than previous budgets.

What would you prioritise to be kept? The question is not about additional spend; it is about prioritising keeping in the budget what is important to your sector that is already there.

On what is already there, we have talked a lot about the need to keep promoting Scotland as a leading destination, so I think we need to keep the budget for VisitScotland high, as it promotes both the country and destinations around the country. That is absolutely key and critical.

We need to keep investing in infrastructure as well. We obviously have significant challenges with some of our transport. I know that members on the islands have had a pretty torrid time of it. We need to be able to turn that around for them and for communities there, so investment in ferries is absolutely key. We need to continue to look at spreading the benefits of tourism and hospitality around the country; rail and bus services are absolutely key, critical and vital as part of that. I think that we should be looking at whether there is a possibility of turning on the tap for a bit more investment in those areas.

We have talked a lot about people. Ultimately, when we come through this crisis, it will be about having the right people come into the sector to deliver the great experience that visitors and guests are looking for. We will certainly be looking to the Scottish Government to continue to invest in activities that support tourism and hospitality, pushing for a greater awareness and understanding of the great jobs and careers in the sector and encouraging people to actively come into the sector, as well as helping us to upweight some of the skills activity for people who are currently in the sector. I see those as priorities.

It is great when we double-act and we have a council that comes together to develop the same pre-budget positioning.

Without question, we have to maintain our position as a competitive destination that is attractive to visit. We also need to create the enablers for people to get here, and infrastructure is critical.

The “Scotland Outlook 2030” tourism and hospitality industry leadership group, which I have been invited to co-chair with Ivan McKee, is about to reform itself with a new membership. It will kick off towards the end of this year, and I guess the priority actions for that group will come out, but I do not see them being any different.

We have to make sure that VisitScotland’s budget is not compromised in any way and that it can continue to do what it does very well. On top of that, there is the destination net zero agenda and how businesses transition to their green agenda. We need to have the right support networks in place to support the industry to do that. A lot of investment is being made by the larger corporates, but some of the smaller operators are struggling to do that and to set out where they will go next. Investment in a skilled workforce continues, along with the national strategy for economic transformation agenda and, I guess, community wealth building. “Scotland Outlook 2030” is all about spreading tourism wealth and how we make that happen.

It is difficult. The budget is very, very tight—we know that—but I think that we would ask that the Government see the sector as a force for good that drives a multitude of benefits through local economies. The one thing that Covid did favourably for the sector is that, when it stopped, there was a much greater recognition of how important tourism is to local communities and how many livelihoods were impacted by its not happening.

I have said to Ivan McKee and others that there is a lot of talk about future industries, but we have been around for a long time, as an industry, and people will always eat, drink and want to have a holiday. The impact that tourism delivers as a force for good should not be underestimated.

If it reassures you, the fact that the Economy and Fair Work Committee is focusing on tourism for a second time perhaps reflects our understanding that it is a national industry that is one of the few that reaches all parts of Scotland.

We have always said that we are very fortunate and grateful for the fact that the Scottish Government recognises the importance of the sector to the economy. We are probably the envy of our colleagues south of the border and elsewhere.

It is about investment in the asset and, going back to the vibrancy of cities, how we bring the buzz, the culture and the lifeblood back into communities—as much for the wellbeing of society. There is a real need to stimulate a lot of jobs, too. We can recover quickly, given the right ammunition. However, we need the investment to pump prime the larger operators—the businesses that are really ambitious. There is a lot of entrepreneurship in the industry, and there have been some great examples of small, medium and large-scale entrepreneurship having delivered. They have ambition and they want to grow. We want to encourage that collaborative approach and to continue working in the way that we have worked previously, over the years.

12:30  

I will come to Bryan Simpson: What would you expect to see in the budget? If you want anything new, you might have to say what you would prefer not to have. Do you think it is more important to keep some of the good, progressive policies that are already there to help in the skills sector or to make progress in different areas that we have heard about in previous evidence sessions? Or is there something new that needs to be done? What is missing from the response so far, not just from the Scottish Government but from the UK Government as well?

I need to separate the two Governments, because my criticism is more barbed, shall we say, for the Westminster Government. In Scotland, the one thing that we need to put more financial and physical, logistical resources into is increasing the focus on fair work and encouraging employers to sign up to the fair work principles—the business pledge. To be critical for a moment, I do not feel that fair work is as interwoven in our discussion around business growth and economic success as it could be. I feel sometimes that fair work is tagged on at the end. More money, more resources and more time, with ministerial buy-in for fair work, need to be put in across the piece.

I totally agree with Leon Thompson about investment in infrastructure. We need better trains and buses to enable the workers to access rural employment or workplaces, as well as to enable the customers to get there.

I have completely lost faith in the British Government’s willingness to support not only small businesses but the lowest-paid workers in the British economy instead of giving tax breaks to the richest people in society. As Leon Thompson said, the average small business will gain about £10,000 from the NI cut, and the average hospitality worker will gain about £200. Therefore, the actual benefit to them from the so-called changes or improvements that are being made at a British level will not touch the sides.

In Scotland, it is about focusing more on fair work, making sure that it is completely interwoven and genuinely resourced across the Scottish economy, and not just in hospitality—retail is crying out for it as well. I also agree with Marc Crothall about community wealth building. That is an important way to get more bang for your buck by putting an amount of money into the hands of citizens who will spend it a lot better, frankly, than some politicians would.

Whatever is done, it needs to be meaningful. A lot of the time, the challenge is that, although the level of support in some cases has been great to have, it has not allowed businesses to make transformational change or invest in order to have real impact. Clearly, business rates are the biggest lever that it is within the gift of the Scottish Government to consider using. However, going back to the idea of being competitive and staying competitive in the modern world, the investment needs to be of a size and scale that is meaningful in enabling businesses to make that change.

That investment could be made through balancing different fiscal measures or otherwise, but the intent is there among many. The aspiration is certainly shared by the industry collectively, but it has to be done at a scale that enables businesses to stay viable and open in the short term.

There is an important message there. There is value in having something that provides a sustainable sector for individuals in the workforce—which has a knock-on effect on retention, which has a cost value itself—and that provides investment in growth instead of addressing just the short-term, immediate issues around energy costs. If there were Barnett consequentials—it is not obvious that there will be—in the business sector area, would business rates be your priority?

Yes, they would be our number 1 priority, along with having no state-aid cap, because a lot of the larger businesses might well go over the tipping point because of business rates. There would have to be a caveat that some of the large businesses would not be excluded from being able to take advantage of a relief of that type.

Thank you for your very direct but also thoughtful responses.

We have had one statement from the Scottish Government about this year’s budget. Within the budget that the committee is responsible for scrutinising, a saving in the region of £50 million has been made in the employability line. That has been partly to fund the Scottish child payment, so it is a decision that the Government has made. In correspondence with us, it has explained that, given the high employment rate at the moment, it feels that it can take some savings out of that budget line.

Bryan Simpson, do you have a view on that? The Government is not denying that it will have an impact, but it says that the impact should be minimal, because there will still be money in the employability budget although £50 million is coming out of it. Do you have any concerns about the impact of that?

I have concerns over that, as £50 million is a huge amount of money that, to be frank, is well spent by organisations like Skills Development Scotland. We work hand in hand with Skills Development Scotland to get some of the 58,000 people who lost their jobs—Marc and I mentioned them earlier—back into much more sustainable employment. I imagine that that will have a massive impact on skills development and the employability resources that are there, and I think that taking money from other areas of the Scottish economy would have less of an impact on the workers who need it the most.

Thank you. That brings us to the end of the session. I thank our witnesses very much for sharing their experience and expertise with us this morning.

We will now move into private session for the remaining item on the agenda.

12:36 Meeting continued in private until 12:56.