Business Environment within the UK Hospitality Industry - Research Paper Example

Socio-economic, legal and political business environment within the UK hospitality industry The impact of socio-economic change on the development of commercial organizations The UK socio-economic environment has greatly changed compared to a few years ago, and has a result had a great impact on the development of commercial organizations including those in the hospitality industry. This has forced these organizations to adapt to these changes or risk collapsing. Some organizations have adapted better than others, depending on the sector they belong to (BBC, 2008). The UK is increasingly realizing the importance of the service sector, which has provided relatively more jobs for its citizens compared to all the other sectors. Moreover, this sector contributes greatly towards the country's Gross Domestic Product. With the current trend of globalization, the UK has come to the full realization of the importance of international trade to its expenditure. The importance of the traded goods sector is slowly but steadily diminishing. The service sector is quickly replacing the traded goods sector in terms of contribution to the UK economy. The UK's economy is the fifth largest in the world as far as purchasing power parity is concerned and sixth largest in terms of the market exchange rates. In Europe, the economy of the United Kingdom is the third largest after that of Germany and France. This presents the hospitality industry with numerous opportunities for growth. The UK was among the first countries in the world to adopt industrialization. It played a very big role in the world economy especially in the 19th century. The United States started coming into the picture in the late 19th century, posing a great challenge to the UK. This also means it was among the very first countries in the world to embrace the service sector. The UK is among the most globalised nations in the world, with its capital London being a main financial centre in the world together with other cities such as Singapore, Hong Kong, and New York City. The UK economy comprises numerous economies including England, Northern Ireland, Wales and Scotland, and is a member of the European Union. The UK privatized most of its state-owned companies in the services and industrial sectors in the 1980s. The UK Government currently owns just a few businesses and industries such as the Royal Mail. After suffering a slow economic growth after the Second World War through to the 1980s, the UK economy experienced an economic boom in the from the 1980s to 2008 when it entered a an economic recession due to the global economic crunch. Just like many of the developed countries, the UK manufacturing sector has been on the decline over the years in relation to its services sector. Currently, the services sector accounts for about 67 per cent of its GDP, with manufacturing accounting for less than 20 per cent of the national output. That means the service sector, which includes the hospitality industry, holds a good portion of the UK economy (Allin, 1999). The fall of manufacturing has been more pronounced in the UK than the rest of the industrialized countries, probably because it is the country where industrial revolution began. Sixty per cent of the food needs in the UK is produced by just one per cent of labour force, a strong indication that its agriculture is efficient, highly mechanized and intensive. The UK financial business services sector and the financial services sector generally account for more than 70 per cent of the country's GDP. This strongly indicates how strong economically London City is, and how rapid the business services sector has grown in the last decade or so. The UK communications sector has also experienced a rapid growth, even though its prices have been falling due to the rapid growth in productivity (Worthington and Britton, 2006). The country's construction sector went into recession in the 1990s as a result of reduced government spending and quick falls in the prices of houses, recovering only in 1997. With the service sector dominating the UK economy, the once vibrant sectors such as agriculture and manufacturing have now been overtaken. Household and personal goods, auto repairs and motor trade sectors are reported to have contributed a gross value of about 127, 520 million Sterling Pounds to the economy of the United Kingdom in the year 2004. Restaurants and hotels contributed 33,074 million Sterling Pounds to the economy in the same year (HCRC, 2001). However, the current economic crisis has had a big negative impact on all sectors of the economy, the service sector included. The sector has slowed down due the decreased spending among consumers. The global economy has greatly slowed down, leaving a great impact in the hospitality sector and its rack rates. The situation has caused less demand in the industry leading to the development of better tariffs by the hotels to attract clients. The drop in demand in the hospitality industry hit 1.4 per cent in 2008, an improvement compared to 3.5 per cent in the year 2007 and 2.8 per cent in that of 2006. The upscale hospitality category expects to see their clients predominantly affected by this crisis (Lashley and Morrison, 2000). The hotels have already started experiencing late bookings and cancellations, a sign of a bleak future for them. As a result, hotels have made use of their flexibility policy in terms of pricing in adjusting their tariffs. Of all the clients, MICE is expected to be the hardest hit for a number of reasons such as uncertainties about their budgets. The legal framework within the UK and the main differences between the English and Scottish systems Currently there are plans to introduce a 'bed tax' in the tourism and hotel sector. This is part the national government initiative to review the funding of local governments, a move that will see a an extra ten per cent tax being surcharged in addition to the 17.5 per cent already in existence as Value Added Tax (JRF, 1995). This plan follows a report for ALG, which proposed the tax describing it as a perfect but small tax because of its relationship with the group imposing apparent costs on local authorities even though it does not contribute anything directly contribute anything to cover these costs. Currently, the UK local councils get their funding from grants from the central government, business rates, charges and fees from certain services such as parking enforcement and the Council Tax. The percentage of revenue coming from Council Tax is very low, which means that a council wishing to modestly increase its funding must increase its council tax (BBC, 2006). However, the central government has the prerogative of capping any council tax deemed to be too high. This has sparked a lot of controversy in British politics with the central government and the local councils casting blame on each other for the rise in council taxes. District level councils are charged with the mandate of collecting taxes although other authorities such as national parks, police authorities, fire authorities, passenger transport authorities, county councils, parish councils and the GLA can make precepts. This clearly shows an element of independence the councils' tax bills. This is despite the fact that the tax is collected by the respective districts before funnelling it to the concerned precepting authority. As a result some joint endeavours are financed by levy. The new proposal could end up raising the cost of a short break by 100 Sterling Pounds for an average family in the UK. This will not go down well for the hotel and tourism sector in the UK since it is already severely taxed. In terms of the hospitality industry taxation, UK comes second after Denmark. However, with the new proposals, it will make it the most highly taxed holiday destination in EU, about three times the average of Europe. The plan, which is still under consideration, could spell doom for the tourism sector in the UK, currently worth 12 billion Sterling Pounds. This is because UK already charges 17.5 per cent VAT, the highest in Europe; most other countries in Europe charge 8.5 per cent while France charges 5.5 per cent only. The general feeling is that with such a high VAT charge, the tourists already pay for the services offered by the authorities. Big hotel establishments have strongly opposed this move and are lobbying against it, led by BHA and tourism alliance. A recent survey by one of leading hotel players in the UK interviewed 2,000 consumers. Out of these, a massive 85 per cent had a belief that hotels in the UK are too expensive. This perception is likely to be made worse by the planned ten per cent increase. It has been predicted that should such plans be implemented, the UK risks losing up to 32,000 jobs and over 1 billion Sterling Pounds in revenue. Many industry players acknowledge that the UK already has a problem and any more taxation in the name of bed tax would discourage people from visiting the country, hence spelling a real disaster. Unlike the English law, the Scottish law presents a very unique legal system based on the ancient Roman law. The law features a number of common law elements with medieval sources. Unlike the English law, the Scottish law has got a mixed legal system often referred to as pluralistic, and which can be comparable to that of South Africa. Since 1707, Scotland has had a common legislature with the other regions of the UK (Toynbee, 2007). However, Scotland retained a slightly different system from that of Wales and England, although the law has felt some English influence. Even though there are a number of fundamental differences between the English law, Northern Ireland law and the Scottish law, many of its aspects are similar. For instance, Employment law and Commercial law are similar all through the UK. This slight difference in the legal systems does not pose much of a challenge in the hospitality industry. Demographic trends The foundation of the UK's social institutions and demographic trends is based on the assumption that the man is the breadwinner in the family while the woman is the career. However, these roles have been slightly changing since the 1960s. Women are equally getting access to resources and opportunities as their male counterparts. Women have therefore also become breadwinners in the family and demanding for gender equity. The UK population has grown tremendously from less than 58 million in 1991 to about 60 million in the year 2000. Different economic characteristics, cultural traditions and demographic structures have aided in underlying household composition, size and distinctive family patterns. This new trend has influence employment across all sectors of the UK economy and the hospitality sector has not been left behind. These employers are now employing all qualified candidates regardless of their gender, religion, race, and social status in the society. Role and influence of the EU and its impact on the UK's hospitality industry The formation of the European Union opened up markets in Europe, leading to an economic integration. It also led to the adoption of the Euro as the official currency among the member states. However, the UK rejected the adoption of the Euro and instead insisted on using its Sterling Pound. Although the EU has opened up markets and boosted economic activities within its precincts, the UK does not have not stand to benefit much due to its uncompetitive hospitality environment. For instance, the UK's 17.5 per cent VAT is among the highest in Europe, only second to Denmark. Most of the other countries in the EU charge less than ten per cent VAT, and hence offer great competition to the UK. Moreover, the UK wants to further worsen this situation by introducing a ten per cent bed tax. Generally, the establishment of the EU has not helped the UK hospitality industry and has instead offered cut-throat competition from other EU member countries. The EU has therefore negatively affected the UK's 12 billion Sterling Pound industry. Self-evaluation The first section of this paper has analysed the socio-economic, legal and political business environment within the hospitality industry in the United Kingdom. It explores the background to the hospitality business environment addressing a number of important issues. It investigates the impact of socio-economic change on the development of commercial organizations in a business and services industry context. The paper further describes the structure and operation of the UK economy and explaining the current government economic policy and how it affects the hospitality industry in the UK. It further explains income, wealth, employment and occupational distribution in relation to the provision of hospitality industry in the UK and assesses the demographic trends that influence employment patterns in hospitality industry. It also analyses the social structures of people employed in hospitality industry in the UK. The second part of the paper investigates how the legal and political environments affect hospitality industry. It describes the structure, operation and influence of local government in the hospitality industry. It further evaluates the role and influence of the EU, and its impact on hospitality industry. It also assesses the role of pressure groups and their political influence in relation to national and local issues and summarizes the legal framework within the UK, identifying the main differences between the English and Scottish systems. It finally explains the legislative process and how it affects the hospitality industry at both local and national levels. The information presented is clear, concise and professional, and can be used to advise organizations in hospitality industry. This information is also accurate and is supported with theoretical base and relevant examples. Moreover, all the sources of information used in the analysis are acknowledged in the bibliography. Reference Allen, P (1999) Is the UK hotel sector out of trouble The International Journal of Contemporary Hospitality Management BBC (2008, August 22) UK economy comes to a standstill, BBC News, retrieved from www.news.bbc.co.uk/1/hi/business/7576274.stm, on August 22, 2008 BBC (2006, October 26) Councils to get fresh law powers, BBC News HCRC (2001) The Hotel Groups Database, The University of Huddersfield Joseph Rowntree Foundation (1995) The working of joint arrangements, Local and Central Government Relations Research Lashley, C and Morrison, A (2000) In Search of Hospitality: Theoretical Perspectives and Debates, Oxford: Butterworth Heinemann Toynbee, P (2007) This vogue for localism has not solved voter antipathy, The Guardian Worthington, I and Britton, C (2006) The Business Environment, Financial Times, Prentice Hall Read More