Why tipping is no longer a choice in Britain

Restaurants can deduct a 12.5pc service charge to the fury of diners, finds Tom Haynes

To tip or not to tip? That is the question. Twenty years ago, when most Britons carried cash, leaving a tip was a reflexive part of eating out. But in today’s increasingly cashless society, tipping has fallen out of favour.

The Department for Business and Trade estimates 80pc of tips are now made by card. Most of these take the form of a “discretionary service charge” – usually a 12.5pc uprating on a bill. Despite being common practice in cities for a decade, the advent of the service charge – not least its adoption in pubs during lockdown – never fails to rile British diners.

This month, news that Rod Stewart had tipped staff at the five-star Gleneagles Hotel £10,000 prompted a wave of discourse around tipping culture, and whether service charges were a fair replacement. “We’re aping America on tips. How long before we hit 35pc?” asked The Times. “Here’s a tip, stop whinging and get your wallets out,” hit back food critic Giles Coren.

The flaws with service charges are well-trodden ground: they are typically hidden in the small print of the menu and are based not on the quality or difficulty of the service, but on the price of what you order. In some cases, a smaller party ordering expensive meals may end up paying more than a larger party ordering on the cheap and demanding more from the waiter.

Defenders of the service charge argue that paying it is optional. But the onus falls on the customer to ask the waiter to their face for it to be removed – an awkward interaction that most would rather avoid. Some have argued that service charges should be ditched and reflected in menu prices, lest we become even more like America, where tips average around 20pc. While cash tips have always been protected, there is some angst around whether service charges even end up in the pockets of the waiters, particularly after it emerged in 2015 that some restaurant chains were siphoning off money paid in tips by card.

From July this year, however, new legislation will mean that 100pc of tips paid by cards – including discretionary service charges – will be paid directly to service staff. The hospitality industry was among the most devastated by the pandemic and remains highly exposed to inflation and rent rises.

But do restaurants really need to charge a 12.5pc levy to help pay staff ?

Speaking to industry insiders, the reality is more complicated than it seems, but all agreed that the service charge is here to stay.

Most agreed that tips remain an important incentive for staff who are typically paid little more than the national living wage. “It’s an essential factor for staff retention within the industry and also helps in their career growth, skills development and career motivation for the industry’s team members,” says Abhi Sangwan, of Chelsea restaurant Kutir.

Restaurants and bars are not allowed to advertise salaries with tips included, but they remain an important method of retaining staff while balancing the books. Relying on tips, rather than upping staff salaries, also makes more financial sense for bars and restaurants.

“If tips or service charges are paid out through a payroll then they are subject to taxes and National Insurance and are considered part of the minimum wage,” says Zoe Adjey, a lecturer in hospitality and tourism at the University of East London. If restaurants increased prices to cover the cost of raising salaries, they would also have to factor in the 20pc VAT paid on food and drink, meaning the customer would probably pay more.

This also has the effect of making meals seem cheaper than they are, adds Adjey. “If a £10 menu dish has a 12.5pc service charge, the total cost becomes £11.25. While transparent by law, this separation can make base prices seem lower while still raising revenue.”

Adam Reid, of Edinburgh taproom Vault City, says this can be a contentious issue with customers, whose finances are similarly squeezed. “Menu prices need to remain competitive enough to get people through the door, which is likely why service charges are seen more and more,” he says.

Paul Foster, chef patron of Michelin-starred Salt in Stratford-upon -Avon and GrassFed in London, says attitudes vary between the two cities.

“At Salt, we don’t charge a service charge and we find guests are very generous as they tip around 15pc overall, which is all on card,” he says. “The tipping culture is very different in London and customers expect a service charge; we charge a standard 12.5pc.”

However, comparisons with America are flawed: in the US, servers are paid a “tippable wage”, where the hourly rate is below the state’s minimum wage, with the knowledge that tips will push waiters’ salaries over the threshold.

Hospitality jobs are more lucrative in the US, where experienced waiters and bartenders can earn a healthy wage, says Ben Thomas, of Tipjar, a platform for tipping by card. “In New York, your bartender will have been doing it for 30 to 40 years and it can be a career – that’s because of tipping,” he says. “In Britain, the person serving beer probably isn’t old enough to drink it in America.”

Unlike in the US or Europe, jobs in bars and restaurants here are seen as the reserve of part-time workers and students, says Sacha Lord, night time economy adviser for Greater Manchester.

Lord argues that the reason for the rise of the service charge being tacked on to a bill is a consequence of the move away from cash. But that 12.5pc can also function as a leveller of sorts, ensuring that even the person at the back stacking fridges sees some of the money. “They’re part of the cogs,” Lord says.

Without the incentive of tips, jobs in hospitality become far less competitive, says Lord. He adds: “Even stacking shelves in supermarkets pays the same, with better hours, but without the stress of people screaming at you from over the bar.” Therefore, without tips service staff become difficult to retain.

But veterans of the industry argue this has always been the case – it’s just that Britons have forgotten how to tip.

Thomas, who spent years working in pubs in his 20s, says: “No one tips in pubs anymore. People would say that they didn’t tip in pubs, but you did – you’d pay in cash and tell the bartender to keep the change, or buy a pint for the staff behind the bar. Cashless has been great for speed of service and transaction, but those little bits of extra cash have gone to zero.”

Taking tips from card without applying a service charge on a bill are possible. Anyone who has visited a high street cafe or inner city pub will be familiar with tablets and QR codes used to extract tips from punters. But the efficacy of these platforms is questionable.

In October, data released by SumUp, a company that makes contactless payment devices, reported that the average value of tips given to cafés, restaurants, hairdressers and other small businesses that use its payment system had plunged from £4.65 in August 2022 to just £2.85 in the same month last year.

Lord, who founded Parklife Festival, has attempted to use QR codes in bars, but argues they are no substitute for cash tips. “There were hardly any tips handed over,” he says. “If I could reverse time I’d much rather have the old days when you go out and you leave a cash tip – that was much much better.” At least, he adds, a service charge guarantees some money will land in the pockets of service staff.

“I do see faces being pulled in restaurants when they’re forced into [paying a] service charge,” Lord continues. “People who question it don’t respect hospitality or the industry.”

‘It’s an essential factor for staff retention within the industry and also helps in their career growth’