The full story

On the 2nd of May Sajid Javid and the Department of Business, Innovation & Skills released their long-awaited response to last autumn’s Call for Evidence on tipping practices, which was itself a response to media attention generated last summer and Unite’s campaign against what they perceive as “unfair practices” in the sector.

Despite headlines suggesting an end to tipping, a ban on service charge or businesses retaining funds, what was actually announced was a further review and consultation of what steps the Government should take. No new legislation has been enacted or even proposed yet. What is apparent is that ministers are still unsure of exactly what “the problem” is, whether legislation is necessary, and how far any potential legislation should go...

The key problem is that, although there have been numerous opinions stated in the press, little has been put forward through the consultation from which government will draw its conclusions. The government is looking for a solution which is clear, transparent, simple to implement and satisfies restaurant goers, staff and businesses alike. In fact, the data from which a course of action will be chosen is thin on the ground and made up of a collection of disparate opinions to reflect on rather than any clear proposals. We are concerned that this will lead to ill informed decisions causing lasting damage to our much-loved hospitality industry. 

Alex Wrethman spoke live on Sky News and ITV News on the 2nd of May aiming to bring some public attention to the issues surrounding this complex topic but, as ever, sound bites do little to resolve matters. It has become even more obvious following this high profile coverage that even those who have important views on this key topic, and may wish to voice their opinion or concerns, do not find themselves drawn to the government consultation process.

Alex subsequently appeared on the panel at the Alliance of Independent Restaurants on the 4th of May to discuss this topic with industry peers. Peter Davies, also on the panel, pointed out that only 13 employers had responded to the initial government consultation. It is perhaps unsurprising, therefore, that the consultation response does not seem to address the concerns, fears and consequences for the hospitality industry. Peter and Alex both feel that there is a lack of action, that we are at risk of sleepwalking into bad legislation, and that someone needs to seize the initiative before the end of the new consultation period on the 27th of June 2016.


possible outcomes

Abolish service charge? This is not straight forward since Service Charge paid through TRONC schemes is very tax efficient. For businesses and employees just to ‘stand still’ financially a 12.5% discretionary charge would have to be replaced by a 23% increase in menu prices – think Danny Meyer in New York! In the UK the customer would end up paying 10% more and it would all go to tax not to the employee or the business.

Legislate on the distribution of Service Charge or TRONCs – maybe it should only go to waiters? Again, think of Danny Meyer in New York. His move was about the principle of the hospitality business taking care of its employees rather than the guests doing so, but it was just as much about the disparity between kitchen and floor pay. The law dictated that chefs couldn’t benefit from tips and they basically couldn’t hire any!

Generally speaking – history suggests that any legislation on distribution of Service Charge would be used to the advantage of or circumvented by the big players; think corporation tax and Starbucks etc. Alternatively, a lack of any formal distribution system and a return to cash tipping would result in a free for all on tips on the floor and the staff liable for payment of their own tax – which they may or may not do. Also, don’t forget that cash is becoming less and less relevant in our society so we may need to think again soon anyway…

Almost any action we can think of will most likely result in further complication and confusion for all parties. We believe the answer is simple…


The tipping point campaign Proposal

All parties including the government, Unite, employees, businesses, customers and trade bodies such as the British Hospitality Association should be able to agree on one principle ; if there is absolute transparency on how tipping or service charge is handled in each hospitality business then everybody is empowered to make an informed choice about where to earn their money or spend their money – and government should be happy since it gets the tax due!

We also know that business’ behaviour around a topic we all care about tends towards ethical or good when it is made public – think Food Safety and Scores on the Doors which has made everyone in hospitality take this issue seriously. After all, no one can afford to lose customers or staff, right? So, the good will out!

To this end, our aim is to draw up a questionnaire on how service charge and tips are handled which we would like to see made compulsory for completion by every hospitality business, submitted to HMRC or Trading Standards and kept on site for inspection by any customer or member of staff who wishes to view it – think Premises License or Employers Liability Insurance Certificate. Why not also display it on each hospitality business’ website?

In our view, It is critical that this questionnaire is highly focussed on drawing out the key issues which the public (and government) would like answered such as; is there an admin fee charged on tips, who receives tips, when do they receive them, how are they taxed etc. It is critical that we leave no loop holes or allow for inclusion of any airy fairy policy statements within this document which might allow the unscrupulous to ‘talk around’ or ‘fudge’ the issues we all want clarity on.

This is all about offering transparency and exposing the facts so that the public can choose which businesses they support based on their view of whether the practices within that business are ethical – think of the benefit Sustainable Restaurant Association’s scores offer to help inform consumer choices. We also advocate that businesses should, each year, demonstrate compliance with their policy as stated in their questionnaire or face ‘outing’ and, potentially fines or penalties.


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