Rachel Reeves's Tax Increase Will Cost Five Guys £4 Million, Hurting Jobs and Growth

Five Guys UK and Europe CEO warns of negative effects on expansion plans due to tax hikes

The chief executive of Five Guys in the UK and Europe, John Eckbert, has expressed grave concerns regarding the financial implications of Rachel Reeves's recent tax increase. He warned that the upcoming rise in employers’ National Insurance (NI) contributions will significantly hinder his company's growth plans, echoing widespread apprehension among hospitality leaders about the adverse effects of the latest Budget on the sector.

Eckbert revealed that Five Guys is set to incur a £4 million loss due to the tax changes set to take effect in April. This financial strain will not only slow the company's expansion plans but also result in fewer job opportunities. He stated, “Consider how many new locations we could open with an additional £4 million. This tax hike restricts our ability to invest and grow. Each new restaurant generates between 50 to 75 jobs, along with approximately £1 million in construction costs, creating a ripple effect in the economy. Our growth potential is clearly stunted.”

The £4 million figure exclusively represents the increase in National Insurance contributions, not accounting for the anticipated 6.7% hike in the minimum wage, which Eckbert noted would further elevate the company’s operational expenses.

Eckbert joins a growing list of hospitality executives raising alarms about the ramifications of Reeves's October budget, which he claims places an undue burden on businesses. The Chancellor's £25 billion tax initiative, which includes an increase in employers’ National Insurance from 13.8% to 15%, and the reduction of the tax-free threshold from £9,100 to £5,000, disproportionately impacts the hospitality industry. This adjustment forces many businesses, particularly those employing part-time staff, to pay taxes on wages for the first time.

“The £25 billion increase in government collections will hit the hospitality sector hard, as many of our employees work part-time,” Eckbert explained. He highlighted that despite efforts to communicate these concerns to the government through lobbyists, the response was dismissive, indicating that the government was uninterested in the potential unintended consequences of their policies.

This tax increase not only jeopardizes Five Guys's ability to expand but also threatens to undermine initiatives aimed at revitalizing the struggling high street. “There is a strong argument for food and beverage establishments to play a larger role in high street rejuvenation, and these tax hikes certainly hinder that goal,” he said.

In addition to slowing expansion, industry leaders fear the tax hike will lead to increased prices for consumers. However, given the current economic climate, characterized by decades-high inflation and a cost-of-living crisis, businesses like Five Guys face limits on how much they can raise prices without risking a decline in sales.

Eckbert stated, “We cannot simply raise prices to offset the £4 million tax increase. We will have to absorb part of this expense.” Currently, Five Guys burgers are already on the pricier side, with a cheeseburger costing around £10, significantly higher than competitors like McDonald’s, where similar items are priced around £1.89.

Maintaining affordability has been challenging for Five Guys, which prides itself on using high-quality, fresh ingredients. The rising cost of beef has compounded these challenges; Eckbert noted that the price has surged to £6.20 per kilo from £3 just five years ago. “We have done everything possible to keep prices down, even absorbing costs, which has led to shrinking profit margins on each burger sold,” he explained.

Five Guys, known for being a premium option, thrives during peak times like weekends and paydays when families and friends seek a quality dining experience. Eckbert emphasized their sensitivity to customer financial struggles when setting prices.

Founded in 1986 in Arlington, Virginia, by Jerry and Janie Murrell, Five Guys, named after their five sons, has become a staple in the UK food scene, boasting 280 locations across the UK and Europe, with plans to increase this number to approximately 300 by year-end. Eckbert, who transitioned from a banking career to lead the brand’s UK expansion, has been instrumental in its success, collaborating with billionaire entrepreneur Sir Charles Dunstone to establish the first UK site in 2013.

The brand has successfully navigated a challenging market, outpacing competitors like Byron and Gourmet Burger Kitchen, which have struggled with closures and administrations. Eckbert attributes their resilience to their ownership structure and the financial backing of Dunstone, allowing them to avoid drastic cost-cutting measures often adopted by rivals focused on immediate profit.

Eckbert cautioned against the pitfalls of private equity ownership, which can lead to short-sighted financial decisions. “When faced with a potential shortfall, some might consider shrinking product size to maintain profits in the short term, but this ultimately undermines long-term business sustainability,” he said.

A Treasury spokesman responded to the criticisms, stating, “We delivered a transformative Budget to reset the economy. Our focus now is on accelerating economic growth, ensuring that working individuals benefit from increased earnings, and leveling the playing field for high street businesses through permanent reductions in business rates and corporation tax adjustments.”