The impact of rising energy costs on the tourism industry

So far in 2022, energy prices have risen at unprecedented levels. Domestic households have had some respite from the rising energy costs due to the Ofgem price cap, which limits the timing and amount of increases. However, the price cap doesn’t apply to business customers, including those in the tourism industry.

Unless businesses were fortunate enough to be tied into fixed contracts, they’ve seen significant increases to their energy prices and therefore the overhead costs of running the business.

Whilst all businesses have been affected, those whose operation is energy intensive have been hit hardest. They face difficult decisions about the product they’re offering as they’ve been unable to absorb the increased costs themselves.

In a recent discussion with a client it emerged their monthly gas and electric bills had increased from £8,000 per month to £32,000 per month. If this were replicated across a whole year, this would add to the business costs of £288,000 solely from increased gas and electric costs.

Without adjusting the prices charged to customers such increases would make the business unsustainable. This is all against a backdrop of increasing inflation rates, resulting in increased costs across all areas of businesses as well as reducing the disposable income of customers.

Many businesses have tried to reduce the impact of the increased costs by taking any steps they possibly can. These have included increasing prices, reducing opening times and changing the way they work to reduce consumption. Some have been able to invest in more energy efficient technology. For others though, they are operating on such tight margins that their increased costs may lead to the closure of their business.

Some welcome support has been announced by Prime Minister Liz Truss. She confirmed that a new scheme for businesses will be put in place from 1 October 2022 for six months. This will give businesses similar support to what’s being offered to consumers (i.e. a cap on the prices that can be charged by suppliers with the Government paying the costs above the price cap to energy suppliers).

Further government support will be provided to ‘vulnerable’ industries after the conclusion of the initial six months’ support, and you’d hope this will include the tourism, leisure and hospitality industry.

The impact on the tourism industry of rising costs is certainly a concern and no doubt we will all be watching for further announcements from the Government following Liz Truss’ appointment as Prime Minister.

If you have any questions, please speak to your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.