Brexit Director Peter Wilding looks at the major issues facing the hospitality and leisure industry as the EU withdrawal deadline looms and answers some key questions.
UK hospitality and leisure companies rely on easy access to a pool of workers from the EU27, particularly on casual zero-hours contracts. This access may be restricted by new immigration rules after Brexit (and after a transition period).
There are a number of generic Brexit issues that all exposed businesses face. These include changes in VAT legislation and procedures; changes in dividend taxation; changes in data protection legislation; changes in employment legislation; enforceability of contracts; changes to UK legislation through the EU Withdrawal Act; and other draft Brexit legislation.
For your business, whether it is hospitality or leisure, Brexit means four big problems and two potential opportunities:
Brexit has the potential to impact the leisure and hospitality sector negatively in three key ways:
1. How can I hire EU migrant workers? The entertainment and hotels elements of the leisure and hospitality industry could be particularly impacted by the departure of EU migrant workers.
2. Will it be difficult for tourists to travel to and from Europe? No one yet knows how easy it will be for people from the EU to travel to the UK. 67% of UK visitors currently come from the EU so any drop in numbers could have a big impact.
3. Will the cost of imported items rise? For pubs, bars, restaurants and clubs, importing items such as food or alcohol could become a lot more expensive as a result of Brexit. If no trade deal is secured between the UK and the EU, there will be a reversion to trading on World Trade Organisation (WTO) terms. The imposition of tariffs would affect the cost of materials (such as food) imported into the UK.
1. The opportunities presented by a weaker Pound. The levels of spending for the broader leisure and hospitality industry are forecast to continue to rise on an annual basis. The weaker pound caused confidence to jump from 16% to 28%.
Question 1: Can I get access to EU labour?
Without access to EU labour, both the hospitality and leisure sectors may face difficulties. The hospitality industry is heavily reliant on EU-migrant workers. Indeed, 15 percent of the UK sector’s workforce is currently made up of EU migrants. Recruiting workers in the future may require an increase in payroll costs as the sector turns increasingly to the UK market to access a pool of talent with consequent adverse implications for profitability. For hospitality developers, labour costs in the construction industry are also increasing. To regulate access to EU labour, the Settled Status Scheme is currently being piloted with NHS employees and a number of universities, but it is sensible for employers to explain to their EU workforce exactly what this is.
Your company could take active steps in talent retention to ensure current employees are not lost, and they also need to intensify their recruitment methods for the lowest paid roles. Understand the EU Settlement Scheme for EU citizens which means, even if there is no deal, EU citizens can stay on exactly the same terms.
If employees are in the UK at the Brexit cut-off point without having completed the required five years’ residency, they will enter pre-settled status, which will qualify to settled status on completion of the term.
Question 2: What steps will I have to take to ensure EU workers have the correct status after Brexit?
The Government has confirmed plans for the settlement scheme affecting all EU citizens in the UK and their families. There will be a 3-stage application process, pledged to be “streamlined, low-cost and user-friendly”. The cost will now be free.
EU citizens and their families who have been continuously resident in the UK for five years by December 31, 2020 – the end of the Brexit implementation period – will be able to apply for settled status. This is equivalent to permanent residency.
Pre-settled status is for EU citizens and family who have not lived in the UK for five years on December 31, 2020. They can continue to live in Britain until they reach the five years, then apply to change their pre-settled to settled status for no fee. They do still need to apply for pre-settled status in order to be eligible for settled status. The Home Office will check the employment and benefit records held by government which will mean that, for many, their proof of residence will be automatic.
In the event of a no-deal exit only EU citizens who lived in Britain before March 29 — Brexit day — would be able to apply.
Answer 2: What is the process:
There are four steps to a successful settlement scheme application:
There are a further three "simple"requirements to satisfy the settlement scheme:
Proof of identity
Proof of eligibility
Proof of suitability
Question 3: How will immigration law change once we leave the EU?
The Government has released the long-awaited White Paper on its post-Brexit immigration policy. The White Paper sets out the proposed immigration regime that would apply from 1 January 2021.
The starting point is that EU free movement rules will end and the same rules which apply to non-EU nationals will apply to EU nationals from January 2021. This will fundamentally mean businesses being required to employ EU nationals under the sponsored Tier 2 visa route for skilled work.
Some of the key highlights for employers from the proposals are:
The annual limit on the number of sponsored skilled work visas (Tier 2 General visas) will be removed
Employers would no longer be required to carry out a resident labour market test in order to obtain a sponsored skilled work visa (Tier 2 General visa)
The skill level required for sponsored skilled work visas (Tier 2 General visas) will be lowered - currently these are for degree level or managerial roles only (although there would be no lowering of the current skill level required for intra company transfers from linked offices outside the UK)
The Government will consult with businesses about reducing the current minimum salary threshold of £30,000 for sponsored skilled work visas (Tier 2 General visas)
Visitors from EU27 countries would not require a visit visa in advance of travel, including business travel, and would be able to use e-gates for quick entry
There will be no dedicated route for unskilled labour but for a transitional period after Brexit, there will be a 12-month visa route for nationals of any skill level from specified low risk countries (with no option to extend, switch into other routes or bring dependants)
The EU Settlement Scheme will still apply to existing EU employees, who must apply by the deadline of either 31 December 2020 (in a 'no-deal' scenario) or by 30 June 2021 (under the Withdrawal Agreement) - for more on these arrangements see our recent update.
While the changes will be welcomed by many employers, the lack of any dedicated route for unskilled labour will present challenges for employers in the hospitality sectors.
The Government has confirmed plans for the settlement scheme affecting all EU citizens in the UK and their families.
If EU citizens and their families have been continuously resident in the UK for five years by December 31, 2020 – the end of the Brexit implementation period – then they will be able to apply for settled status.
Pre-settled status is for EU citizens and family who have not lived in the UK for five years on December 31, 2020. They can continue to live in Britain until they reach the five years, and then apply to change their pre-settled to settled status for no fee. They do still need to apply for pre-settled status in order to be eligible for settled status.
However, for farming, UK fruit and vegetable growers will be able to recruit non-EU migrants as seasonal workers after Brexit under a new pilot scheme. Ministers say the initiative between spring 2019 and December 2020 will help tackle labour shortages during peak production periods. The visas for up to 2,500 workers a year will last for six months.
Question 4: Will costs rise?
We are likely to see the greatest operational impact from the effect on trade. If no trade deal is agreed between the UK and the EU, the terms regulating UK-EU trade will revert to WTO commitments. Companies in the UK importing from the EU will face tariffs on imports and customs clearance procedures. This is a large administrative burden that will take time and money to implement.
Increases in import costs will have an impact on all UK hospitality and leisure companies that import products (such as food) from abroad. Increases in such costs will have a significant impact on certain operators in the sector. For example, purchases currently account for the largest costs for most full-service restaurant operators, at 38.9 percent of revenue.
Your company will need to develop a corporate customs infrastructure and software in addition to updating their processes to cater for new customs declarations.
If there is no deal made, ports and wider infrastructure will need to have millions of pounds spent on them to cope with the new custom demands, inevitably causing significant delay. The most common contingency measure that businesses are taking to mitigate against the risk of disruption to their supply chain is the stockpiling of goods. Furniture, fixtures and equipment procurement will also be a challenge for hospitality developers as much manufacturing takes place in Europe.
It would be prudent for organizations with UK operations that rely on a supply chain existing in whole or in part outside of the UK to carry out impact assessments that address the scenario of a no-deal Brexit, so that potential problems can be identified.
Question 5: What impact will Brexit have on UK tourism?
Trends in personal and consumer travel. Staycations provide a considerable boost to leisure and tourism in local areas. The lack of free movement of EU migrant workers that could result from Brexit has already been addressed. However, this also has the potential to impact on tourist free movement. No one yet knows how easy it will be for people from the EU to travel to the UK, whether to see London’s sights or to attend UK sporting attractions. Most experts have estimated that there will be an inclination on the British side to make this as easy as possible but it’s just too difficult to predict what the end outcome will be. 67% of UK visitors currently come from the EU so any drop in numbers could have a big impact.
Question 6: Will airlines still be able to operate in the same way?
Air travel itself is expected to continue between the UK and EU even if an agreement isn't struck. The European Union issued guidance in December 2018 saying it intended to allow flights from the UK into its airspace. However, this will only extend to "basic connectivity." Britain's exodus from the EU's Single European Sky initiative could have knock-on implications for air traffic management, significantly affecting airport runway capacities.
What you can do?
Businesses should generally be taking a balanced approach to their exposure to Brexit and put in place contingency plans. The key to navigating Brexit successfully is informed analysis, accurate forecasting and practical contingency planning. FBC Manby Bowdler has the combination of political, policy and legal know-how to provide this level of Brexit advice.
To get in touch with our Brexit advisory team contact Peter Wilding on 01694 724440, 07901 008220 or email email@example.com.