Autumn Budget: ‘Latest blow for hospitality businesses’ as NI rise confirmed and rates support slashed

Chancellor Rachel Reeves delivered her maiden Budget following Labour’s landslide election victory in the summer earlier today (30 October), during which she announced £40bn of tax rises.

Business had been bracing themselves for a tough Budget, and reaction from the sector has been gloomy.

“This Budget is the latest blow for hospitality businesses,” says Kate Nicholls, chief executive of UKHospitality.

“Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.”

NICs rise confirmed

As had been rumoured​​, NICs for employers will rise from 13.8% to 15%.

In addition, the threshold at which businesses start paying National Insurance on a workers' earnings will be lowered from £9,100 to £5,000.

The changes, which the Chancellor said will raise £25bn a year, will come into force from April 2025.

Combined with the already confirmed rises in the minimum wage​​, there are warnings the tax rise could lead to hospitality businesses reducing the number of staff they employ and instead incorporate more technology into operations.

“The rise in employers’ National Insurance rates is a huge blow to businesses,” says Anthony Davies, partner and head of tax at accountancy firm UHY Hacker Young.

“A lot of low-margin sectors like hospitality are going to struggle to cover those new costs.

“We expect to see those sectors step up their transition away from workers and towards technology – for example the use of self-ordering kiosks in restaurants.

“If the cost of keeping workers in jobs continues to rise, making the decision to reduce staffing will get easier.”

Reeves added that the employment allowance, which allows smaller businesses to reduce their National Insurance liability, will increase to £10,500 from £5,000.

“The change in NICs has been a mixed bag for all businesses – including those across the hospitality sector,” says Richard Samarasinghe, director of marketing at Harrison, a specialist brand, interior and architectural design agency for the sector. 

“While the employers allowance raising from £5,000 to £10,500 has been hailed by many as a huge step in protecting small businesses, coupled with the NICs rise to 15%, the threshold being halved, and the increase in minimum wage increase of over 7%, the total increase in costs for all employers could still be significant and ultimately slow down wage growth in the hospitality sector.

“These changes are particularly worrying for an industry that often operates on narrow margins and is already struggling with like-for-like sales.”

Rates support slashed as Chancellor announces plans for reform

In the build-up to the Budget, calls had grown for an extension to business rates support​​, with UKHospitality warning that the sector faced an additional rates bill of ​​£914m if current relief ended as planned​​ on 31 March next year.

Reeves confirmed that support would be extended, but at a lower rate.

Currently, businesses in the sector receive a 75% discount on business rates, worth up to £110,000. From April next year that discount will reduce to 40%, capped at £110,000.

The small business multiplier will also be frozen for a further year.

“Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended,” says Nicholls.

“However, the reduced level of 40% is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.”

Figures supplied by commercial real estate intelligence firm Altus Group show that the reduction in rates support will mean an average 140% rise in business rates bills for more than 250,000 high street premises in England next year.

Restaurants will see their average bill rising from £5,051 to £12,122, according to the group, while the average bill for pubs will increase from £3,938 to £9,451.

“The decision to slash the retail, hospitality and leisure relief scheme from 75% to 40% is absolute madness,” says Simon Green, head of business rates at property consultancy Gerald Eve. 

“It will see rates bills more than double overnight for 250,000 small businesses, leading to business failures and job losses.”

The Chancellor added that she will now deliver a fairer business rates system, as was promised by the Labour Party in its manifesto​​, through ‘permanently lower’ business rates multipliers for retail, hospitality and leisure properties.

However, these changes are not expected to come into force until the 2026/27 financial year.

“Businesses will be hugely disappointed,” Green continues.

“After three years of Labour promising abolition and replacement of the business rates system, which remains one of the highest taxes of its type in the western world, it looks like the business community is set for further delay as the Government engages with stakeholders about changes that at best seem likely to lead to mere tinkering around the edges.

“This falls woefully short of what they were hoping for.”

Draught duty cut welcomed

One of the high points from the Chancellor’s Budget was a cut in draught duty by 1.7%, which she said equates to a penny off a pint in the pub.

However, all other taxes on alcohol will rise in line with the Retail Prices Index (RPI).

Ash Corbett-Collins, chairman of the Campaign for Real Ale (CAMRA), says the cut ‘will help pub goers’.

“Despite general rises in alcohol duty next year, CAMRA is pleased to see the Chancellor’s decision to cut the rate of tax specifically on beer and cider served in pubs, clubs and taprooms,” he says.

“This will help pub goers as well as independent breweries and cider producers who sell more of their products into pubs, and recognises the principle that drinking in the community setting of the local pub is far preferable to the likes of cheap supermarket alcohol.” 

Reasons for longer-term positivity

Nicholls says the Budget means ‘2025 will be painful for hospitality’. However, she adds that there are reasons for ‘longer-term positivity’.

“I am pleased that the Chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality,” she says.

“Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.

“We need to see the detail and the Government must work with the sector in the design and delivery of this significant change to get it right.”