Are London restaurants taking advantage of the new tipping act? Recent reports suggest that several eateries are adding unexpected charges to diner’s receipts, leaving customers to foot the bill for rising operational costs.
Since October, it has been illegal for firms to keep hold of service charges to encourage a fairer allocation of tips to staff. The loss of revenue has hit some establishments hard. And it seems some chains are embracing alternative pricing strategies to reduce the impact.
Both the London Steakhouse Company, co-founded by celebrity chef Marco Pierre White, and Harrods, which owns over 20 restaurants and cafes in the UK capital, have faced criticism for introducing cover charges as a creative workaround to the new laws.
Have you paid for that napkin?
The London Steakhouse and Harrods are two premium eateries in London known for their fine dining experience. Likely, though, even their upmarket customer base will raise an eyebrow when they’re handed the final bill this year.
As reported by the Guardian, Harrods has instituted a £1 “cover charge” in all its restaurants and cafes in London, on top of a 12.5% service charge. It first trialled the change last year.
The London Steakhouse also apparently began charging diners a £1.50 levy this year. Ostensibly, this is to cover the cost of accessories that most patrons would expect as standard, such as tablecloths and napkins. The fee comes on top of a 12.5% service charge.
Why are cover charges cropping up?
Cover charges are usually associated with nightclubs entrance fees rather than napkin costs. But they are now becoming increasingly common at UK restaurants.
Because they do not relate to the standard of service from staff, cover charges are not covered by the new laws. Harrods staff have speculated that this is why the fees have become popular, as a way to mitigate against falls in profits without raising prices for diners.
Some workers have also expressed concerns that the move will result in service charges being completely removed from food bills, impacting their take home pay. This Sunday, more than 100 Harrods workers are set to begin a three-day strike over wages and conditions.
Secret charges coming to your bill
Startups has previously reported on new hospitality fees being rolled out across pubs, bars, and restaurants, as businesses deal with the loss of revenue incurred by October’s tipping law changes.
Some have reportedly completely replaced service charges with a newly-invented ‘brand charge’. Others have passed their checkout fees (the cost of processing a card payment) onto the customer.
One pub in London, O’Neills on Wardour Street, Soho, has even employed dynamic pricing to apply a £2 levy to any drink served after 10pm.
The changes may keep menu costs down, but diners are unlikely to be impressed. With patrons now being forced to pay service charges on top of the extra levies, they will leave with full stomachs but empty wallets, impacting the customer experience and lowering trust.
Speaking to The Telegraph, Steven Hesketh, who is CEO of Savvy Hotel Group, described the decision to add more charges for customers as “another nail in the coffin of the hospitality industry, which we really don’t need.”
Hospitality businesses struggling
Restaurant-goers who have not noticed new charges since October will likely do so in 2025.
Industry leaders were left reeling after this year’s Autumn Budget, with many warning that the cash-strapped firms could not absorb the raft of tax rises.
These include a rise in employer National Insurance Contributions (NICs), as well as a planned increase to the minimum wage due next April.
Research by three rocks®, completed ahead of the Tipping Act’s introduction, found that two thirds of hospitality firms relied on a portion of service charges as a revenue stream.
With October’s rule change having hit profit margins already, the start of the next financial year could signal last orders for many UK pubs, bars, and restaurants. Figures from PwC report that in the first half of 2024, 50 pubs closed per month due to hiked labour costs.
One pub landlord, based in the West Midlands, went viral last month for starting an online petition to demand another general election. In the petition, owner Micheal Westwood called on the UK government to do more to support the struggling hospitality sector post-Budget.
“It is just going to make it harder for small businesses and there will come a time when many just say ‘I’ve had enough’ and call it a day,” said Westwood.
