National Hair & Beauty Federation (NHBF) – Written evidence (HSC0017)

The National Hair & Beauty Federation (NHBF) has around 5,000 Members and is the UK’s largest trade body for the hair, beauty and barbering industries.

The hair, beauty and barbering sector is made up of around 48,000 businesses, mostly small and micro businesses operating in high streets, towns and cities across the UK. The sector makes a significant contribution to the UK economy, with £4.6 billion spent on services[1] and consumer spend across the whole sector totalling £24.5 billion[2] in 2023. Salon businesses are led predominantly by female entrepreneurs, and provide valuable careers to 257,000 people, more than half aged 18-35, across the UK.

Overall approach

Thank you for the opportunity to put forward our views. Our overall message in response to this consultation is to underline the importance of the hair and beauty sector as a stalwart of the high street across the UK and disproportionately present in more disadvantaged communities[3]. Barbers, beauty salons and nail bars are in the top ten fastest growing parts of the retail sector[4], albeit with hair & beauty salons and hairdressers declining in number over the last year.

The latest data from the Local Data Company shows that barbers remain the fastest growing category across the country. The category has returned to pre-pandemic levels of growth with a net increase of 665 units on the high street in 2023, 441 units higher than the previous year’s increase. Other hairdressing, health & beauty categories feature in the list of fastest-growing categories this year, with nail salons (+302 units) and beauty salons (+254 units) joining barbers in the top 10. However, in 2023, there was a decline in hair and beauty salons (-247) and hairdressing (-752) which is a larger decrease than the previous year.

We call for:

• Local authorities and decision makers to ensure that the views of hair and beauty businesses are fully factored into local plans and developments.
• Spatial planning to take account of creating high streets of the future, that are resilient yet flexible and positive environments where people can meet, shop, access services and interact in a positive setting. Hair and beauty businesses have wellbeing and people at their heart.
• Government to provide important targeted support to the sector in the form of VAT reform which is disincentivising growth and employer incentives for apprenticeships to drive the future of this important player on the high street.
• Business rates relief offered by governments across the UK in recent years has been invaluable to the sector. However, a fairer system of business rates and future reform is needed to level the playing field between online and bricks and mortar businesses.

We have included general points below in response to your inquiry questions.

Hair & beauty sector role in communities

It is well recognised that the hair, beauty and barbering sector is a stalwart of the high street helping to drive footfall to these community spaces. It has also, over time, been a significant provider of apprenticeships, providing skilled work and meaningful careers to young people across the UK. It is a proud, passionate and caring sector with people at its heart, offering flexible careers to a largely female workforce and packing a punch in terms of its contribution to community wellbeing. With the right support, the sector has the potential to play an important role in further complementing stretched NHS services in the future through complementary therapies in terms of wellbeing, mental health and cancer care.

In addition to providing hair and beauty services to clients, many are also community hubs.  For some isolated or elderly clients, their regular visits to the salon provide a chance to talk to someone face-to-face. Many salons provide community services such as free haircuts to the homeless or are trained to help the community, for example by spotting signs of domestic abuse or helping to combat suicidal tendencies. Many businesses also work with hair loss charities and collaborate with local doctors on wellbeing events to tackle stress. The NHBF also collaborates with skin cancer charities to share advice and guidance on picking up issues during treatments.

Current context

Sector businesses have battled through the rollercoaster years of the pandemic[5] restrictions and lockdowns and now face ongoing challenges of high energy costs, inflation and low growth. Our latest quarterly State of the Industry survey results from January 2024 show us that[6] the sector is on a long, slow journey to recovery. However, there is still heavy reliance on external support (58%) and more than half of businesses are in debt[7]. Of most concern for future growth, is the continued decline in apprenticeship starts, continual challenges to find experienced staff and the fact that recruitment intentions for both staff and apprentices are still muted.

We were grateful for the continuation of the 75% Retail discount announced in the Autumn Statement, as this is an important intervention for many sector businesses. The rise to the VAT threshold to £90,000 announced in the Spring Budget is also a useful interim measure taking account of inflation, which we estimate will benefit around 5000 businesses in the hair and beauty sector (VAT/PAYE registered and unregistered, given the bunching effect behind the threshold starting at £72,5000). However, further VAT reform is needed in the future.

Post Covid, we know from our quarterly survey and anecdotal feedback from businesses that some suburban areas and high streets have fared well, as people opt to use services close to home rather than travelling into city centres as they are commuting less and working from home more. Some city centres locations for example, parts of central London, have fared less well. In addition, due to high energy and staff costs, some businesses are working reduced hours or not opening for certain days a week. Some businesses even no longer work Saturdays because of a lower footfall at weekends, compared with during the week.

NHBF also published an ethnicity report[8], an Analysis of the Trends Within the Hair & Beauty Industry by Ethnicity Across the UK – compiled by the Local Data Company, the first of its kind to be undertaken in the industry, which gives insights into trends across the UK.

Key government recommendations

1. Supporting future talent:

Given rising wages in April 2024, it is vital that we find urgent solutions to businesses not able to afford to take on staff, apprentices and grow their business. Increases to the National Minimum Wage/National Living Wage have been in the top three concerns of businesses for more than two years now. One third of businesses (34%) told us last year that rises to the NLW would be ‘unaffordable’ for their business.

Since then, employment intentions in the sector of staff and apprentices have been muted over the past year. They took a further dip in January 2024 according to our quarterly state of the industry survey. In the next three months, only 17% (down from 27%) were definitely or likely to take on new staff and fewer businesses (9%, reduced from 20%) would take on apprentices. We call for:

• More effective redistribution of levy funding: Small and micro employers need further support through redistributing unspent levy funds, offering apprenticeship incentives up to £3,000 per employee. This would particularly help fund the gap between the apprentice wage and the national minimum wage for older apprentices aged 19+.

• Flexi-apprenticeships: with the rise of the self-employed in the sector, further develop the option of flexi-apprenticeship models where individuals can move and train between different employers, reducing the cost burden for businesses.

2. VAT reform

The NHBF calls on the Government to carry out an urgent review of VAT which is disincentivising small business growth.

We published an independent report by Pragmatix Advisory Ltd in January entitled ‘Avoiding the cliff edge: Considering possible options for a VAT threshold smoothing mechanism’.[9] Thousands of businesses are holding themselves back behind the threshold to avoid the impact of the additional taxation which is disincentivising growth.

The report models both fiscally neutral options and non-fiscally neutral options for tiered rates for the Government to consider. The report also showcases international examples of where reduced VAT has had a positive impact eg. the Netherlands reduced VAT to 6% in the early 2000s for labour-intensive services which led to the creation of 4000 sector jobs.

A reduction in VAT is one of the main interventions that businesses (57%) believe would make the most difference to the survival options of their business over the next six months.

The NHBF is calling for a fairer approach to the tax system which creates more of a level playing field between businesses with employees and businesses using self-employed individuals. There is a growing trend towards self-employment in the industry[10]. The vast majority of self-employed hairdressers, barbers and beauty therapists are individuals that do not earn enough to reach the VAT threshold. Businesses that employ their staff are far more likely to pay VAT as their turnover is for one business, whereas those with self-employed individuals working in their salons are less likely to pay VAT because there are several micro-businesses operating within their salon.

We would welcome further discussions with HM Treasury around the way that VAT is applied including; reducing the rate of VAT, raising the threshold or introducing tiered rates for the smallest businesses to remove the disincentive to grow and remain below the threshold. The current system whereby a salon immediately becomes liable to a £17,000 VAT bill as soon as they cross the threshold is a powerful incentive to remain below this line.

Concluding remarks

Thank you for the opportunity to put forward our views. Many hair and beauty businesses are active at a local level in influencing their local authority, business district, community and environment in a positive way. We call on the government to support this vibrant and evolving sector into the future.

21 March 2024