The United Kingdom is at a potential turning point in its economics.
The Conservative Party, which ruled between May 2010 and July 2024, said it had done sterling work on the economy. Voters at this year’s July 4 general election clearly thought they had not and elected a Labour Party government under Kier Starmer, who claimed the Conservatives had left a £22 billion debt black hole. Now, everyone is getting worried a sucker punch is coming in the Oct. 30 budget, the new government’s first.
The government’s Office for Budget Responsibility, which acts independently of government ministers, said that the country’s debt is likely to triple over the next 50 years to be 274% of gross domestic product.
Ouch!
Voters vote in new governments largely because they want change, but when that change hurts their wallets, well, none of us like that.
Government officials are saying tough decisions are needed — I imagine most incoming governments say the same — but this year I think those decisions will smart.
The new government has negotiated the end to some long-running industrial disputes and strikes, with critics stating it had just keeled over and given the unions what they have wanted for the last couple of years but did not get from the outgoing government.
One of those pay increases was a 22% raise for junior doctors.
How much discernible income will be left for the hotel industry apart from that of junior doctors? Will consumers move segments? Will discretionary spend decrease even if room nights do not?
There has also been new data this week from the Office for National Statistics, which said that in the hotel and restaurant industries there are currently 98,000 job vacancies, the first time that number has dropped from six digits since COVID-19. That said, vacancies remain 5,000 higher than in 2019, when the number was 93,000.
The ONS also showed that pay had increased 4% year over year, which is higher than inflation, although not that of a year ago.
Costs are increasing. The number of people wanting to work in the industry is not increasing, but wages for those who do are increasing. And the upcoming budget will be painful.
Kate Nicholls, chief executive of UKHospitality, said the hotel industry is now “nervously waiting for the Low Pay Commission’s recommendation of next year’s wage rates, particularly as significant increases over recent years means wage costs now represent at least a third of business costs.”
“[That] average earnings were 4% higher than a year ago should give pause to the LPC moving too far and too fast with above-inflation wage increases,” she said in a news release.
There will be some tough business decisions up ahead, although in its election manifesto the Labour Party promised not to increase income taxes, value-added/sales taxes and corporation taxes, which surely must comprise most of the government’s income.
There are financial tools that can be tweaked to gather income, such as bond-issue cutting, the end of the so-called “quantitative easing,” which caused inflationary pressure and a widening divide between the haves and the have-nots.
What gets cut, then? Or, possibly, sensibly saved?
One focus has been on the income of pensioners, an idea that, so the thinking goes, was sacrosanct for the Conservatives due to that demographic more likely voting its way.
The winter-fuel payment has been cut in the last month, with exceptions for the least-well-off, and there have been a flurry of news reports of people saying they earn a few pennies more than the cutoff not to have the payment continued, and thus they are now worse off. Some people have said they did not ever need the payment, but it came anyway and is placed in a pot to help pay for a vacation or some other treat.
Pensioners might see some more pain, and this is a group that has worked hard and long and deserves to retire and enjoy life, which often it does so by going on high-end vacations.
Consumers, though, will continue to dream about vacations and book them, but it will be interesting to see how trends develop.
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