Scotland's hospitality sector requires a new recipe

Hospitality, like the rest of the economy, is finding itself heading into an uncertain summer season. Overall, industry activity may be back to pre-recession levels, but there isn’t much of a feeling of renaissance, more a sinking feeling when considering the challenges to come. 

The outlook for the labour market, in terms of the people available to work and to work at their full potential, is looking uncertain. The numbers of people termed ‘economically inactive’ who are unable to work is following an upwards trend across the UK. 

This matters for the whole economy, but particularly for the labour intensive hospitality industry where understaffing undermines the quality of service and productivity is driven by the skills, motivation and ability of those available to work. Technology plays a role, but good service in this industry hinges mostly in the hands of what its workers do on the day.  

However, despite its reliance on its workforce, it is an industry that does not have a good reputation for treating its workers well and struggles to be seen as a credible career destination. 
The question is why? 

At the Fraser of Allander we have been involved in a programme of research for two years now in collaboration with the Poverty Alliance, trying to better understand how the sector can secure a more settled and sustainable way forward for employees and employers alike. 

Four themes emerge time and time again with regard to the workforce: availability, retention, capability, and motivation.  

In terms of availability, although vacancy numbers have come down from their 2022 peak, they remain above where they were pre-Covid and pre-Brexit. As well as rising inactivity rates in the domestic population, the increase in minimum earning requirements for skilled worker visas is making it harder to bring in foreign workers who in the past have been heavily relied upon. 

Managers and business owners we have spoken to know they can do more to improve the attractiveness of the industry and make it a better place to work. 

For example, by giving supervisors and managers space to try new team building initiatives (or to bring back pre-pandemic initiatives that have fallen by the wayside) is something we’ve been told would help with peer learning, skills development and getting to know team members better to build trust and cooperation.  

In addition, finding ways to reward commitment is something that perhaps could be considered more, given the challenges of retainment and the reward at stake from hanging on to institutional knowledge. Sourcing ideas from employers and lower levels of management should be encouraged. 

Finding ways to facilitate engagement in low cost initiatives will be win-win. 

While many of the issues raised are not new, emerging societal issues around the capacity and capability of the workforce are a growing concern. The rise in ill health, particularly mental ill health in younger people, is something which employers tell us they are seeing more and more.

There is clearly a need for proactive measures to safeguard mental health in the workplace. But there also needs to be action to deal with issues that aren’t the responsibility of employers such as mental health treatment options, and action to deal with some of the known drivers of ill health, such as poor housing. 

There is one last issue to cover that often feels like the elephant in the room when talking to employers: pay. 

Businesses need to challenge themselves to think about whether their staff can maintain a good standard of living in the area where they live and work with the pay on offer. If not, then it will be difficult to fix any of the issues outlined above. 

It can be a vicious cycle: issues with being able to attract and retain staff undermine the success of a business. 

But paying above the market rate for staff is risky, if competitors aren’t doing the same, and is a decision businesses often see as a cost that will increase prices and reduce custom rather than an investment that will give them a good return. 

Individual employers, understandably, do not know how to exit this cycle especially when cost pressures are bearing down on businesses from governments at all levels. 

Domestic rate reform is a key ask of industry groups, along with a more supportive attitude to doing business from local authorities. 

For example, businesses we’ve spoken to do not understand why they pay rates to their local authority but, unlike council tax payers, they still have to pay for waste removal.

Another example is business permit parking: in Glasgow, resident parking permits range from £85 – £325 a year compared to a flat rate of £850 for a vehicle needed by a business. 

Managers also, rightly, point to the lack of status of the industry as a career destination with schools, colleges and government among those who are blamed for not doing more to help build skills, and resilience, to help young people prosper in the industry once they leave education. 

Many young people, their teachers, and parents will see hospitality only as a temporary stopgap, not a long term destination. 

What is clear is we are in an unsustainable place. There are multiple actors with a job to do: employers and managers are the ones who can set a different path for their own workers, but without the support from the sytem around them, the businesses who try to do better are not necessarily the ones who will be rewarded. 

Without change, the outlook for the industry will not improve. This is bad for the business owners, bad for the Scottish economy, and bad for the workers. n

The Fraser of Allander Institute produce a quarterly economic commentary – see the latest edition at https://fraserofallander.org/research/fai-economic-commentary/