How bad was the autumn statement for UK hospitality?

On 30 October, the UK government’s autumn statement delivered a body blow to a UK hospitality industry still recovering from the damage wreaked by the Covid pandemic, with headline increases in Employer’s National Insurance and the National Living Wage, and lowering of the National Insurance threshold, creating a challenging landscape that could mean operating costs for hospitality businesses will be significantly higher.

There were some glimmers of hope however, with hospitality business rates relief, a cut in draft alcohol duty, and various forms of help for small businesses providing a little balance. So was the budget as bad as many in hospitality feared, and what will it mean for the sector as a whole?

What has changed and why?

The new Labour government’s mandate was built on a manifesto that promised no tax rises on ‘working people’, with them ruling out rises in Income Tax, VAT or National Insurance. However, upon being elected in July this year they claimed to have discovered what Chancellor, Rachel Reeves, described as a £22bn ‘black hole’ in the budget left by the previous Conservative government, essentially a huge discrepancy between tax receipts and spending.

To rectify this, and to fix the UK’s crumbling public services and infrastructure, the autumn budget increased spending by £70bn, funded in part by changing the borrowing rules around investment, but also by £40bn of extra taxes. Many of these taxes have fallen on businesses, particularly larger businesses with more than four employees, which is not good news for the hospitality sector.

What are the headline figures?

The largest chunk of the £40bn, £25bn of it, comes from changes to employees’ National Insurance (NI) contributions, with employers’ NI rising from 13.8% to 15% in April 2025, when the new tax year begins. Whether you agree that the changes will raise this much, or if this is breaking a manifesto pledge, this in tandem with lowering the threshold at which employers pay NI contributions for their staff, from £9,100 to £5,000, means that NI changes will cause significant extra costs to hospitality businesses. 

The National Living Wage will also rise by 6.7% to £12.21 p/h, something that has been touted for months and is part of Labour’s ‘New Deal for Workers’. The lower rate for those aged 18-21 will also be abolished, meaning there will be a flat rate for everyone over 18. This won’t happen straight away, it will be phased in over the next few years, but it does mean a bigger rise almost immediately for 18-20 year olds of 16.3%, up to £10 p/h, in April 2025.

What could this mean for a typical hospitality business?

There has been concern from across the hospitality sector that this could be the final nail in the coffin for some businesses that are already struggling to stay in the black. Kate Nicholls, chief executive of UKHospitality said that it could add up to £1.9bn to the overall hospitality wage bill, while Stephen Montgomery of the Scottish Hospitality Group said that some estimates suggest a 10% rise in operating costs.

Whatever the final figures, it will certainly mean costs rising, and the consequences of this could be fewer staff being employed, either through reduced hiring or layoffs. It may also mean that individual staff who were being paid above the National Living Wage see their pay frozen or reduced to balance the overall wage bill.

Higher costs will also mean that businesses have less money to invest in improvements or innovations like digitalisation, slowing the growth of the sector and making it less future-proof. It could also impact the move of some larger businesses towards lower-carbon operations, for example the intelligent building management systems recently adopted by many hotel chains that have high upfront costs.

What’s the good news?

Despite the obvious and significant challenges, there were some green shoots in the budget, particularly for small businesses. Relief on business rates was one of the big ways the Chancellor tried to balance things for hospitality, with a 40% discount for retail, hospitality and leisure up to £110,000 in 2025/2026.

An increase to the Employment Allowance, from £5,000 to £10,500 is also good news for SMEs, meaning that qualifying businesses can keep up to £10,500 that would otherwise go to NI contributions. This will help an estimated 865,000 small businesses and will counter the problems caused by the NI changes elsewhere. The small business tax multiplier will also be frozen next year.

For pubs and clubs, a cut to draft alcohol (served via a pump) duty of 1.7%, instead of raising it in line with inflation as was expected, will mean the equivalent of a penny off a pint. However, alcohol duty will increase in line with the Retail Price Index inflation from next April, having been frozen since September 2023.

The fact that corporate tax will remain at 25% for the foreseeable future provides some certainty, while customers will still have spending power after seeing their personal taxes frozen and employees may be happier and more motivated with a higher National Living Wage.

What’s the overall picture?

Whichever way you cut it, it was a difficult budget for the hospitality sector. A large part of the new tax burden will fall on the shoulders of businesses that don’t seem to get a break, after Brexit, Covid and record inflation. Labour’s manifesto promises painted them into a corner, and the only way out was to focus on business taxes.

While the Exchequer arguably needs the money, there could be harmful impacts on business, particularly in the service sector. It could affect the availability of jobs and some businesses may fail due to higher costs. This could have an effect on the whole economy by reducing growth and the likelihood of investment or innovation.

However, for many front-line workers in hospitality at least, the budget was good news, with higher wages while taxes in their wage slip remained fairly static. Consumers will also have more money in their pockets, which could mean hospitality still has a good consumer base, even if higher costs are passed on to consumers through higher prices, which, if it happens, it is a tax on them in all but name.

The hope is that better public services, increased government investment, and a positive consumer mood will go some way to even out the problems caused by this budget, though only a little. Though if the burden continues to be placed on the sector in future budgets, things will get worse for hospitality before they get better.