Budget ‘latest blow’ for pubs and restaurants as industry braces for 'painful' 2025

Today Rachel Reeves delivered the Autumn Budget to the Commons, outlining a series of changes to tax and spending in her first budget as chancellor - and Labour’s first in 14 years.

The chancellor laid out how she would raise £40 billion a year in extra taxes during her speech to MPs in the House of Commons on Wednesday afternoon. The Chancellor said the measures were necessary to address the “black hole” in the public finances left by the Tories.

Reeves maintained her promise not to hike taxes for working people, but confirmed plans to hike employers’ national insurance contributions, as well as a 6.7 per cent hike to the National Living Wage and increase to minimum wage for 18 to 20 year olds.

READ MORE: Sixteen key highlights from Rachel Reeves' Budget 2024 including wage rise and new vape tax

Moves such as this have been met by some anger and frustration by the hospitality industry, with one of its major trade bodies calling it the ‘latest blow' for the sector. While she also confirmed the price of a pint will drop, a permanently lower level of business rates for the sector from 2026/2027, and increase with the Employment Allowance, many have said it will be ‘incredibly difficult’ for some hospitality businesses to survive.

Kate Nicholls, Chief Executive of UKHospitality, said: “This Budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.

“In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.

"Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40 per cent 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.

"All of this means that 2025 will be a painful for hospitality, with a increased annual tax bill of £3bn for the sector."

The chancellor announced that National Insurance contributions for employers will rise by 1.2 percentage points to 15 per cent from April 2025. Ms Reeves said she would also be reducing the secondary threshold - the level at which employers start paying national insurance on each employee’s salary - from £9,100 per year to £5,000.

Speculation that the chancellor was planning the move had been widely reported in recent days, with many businesses raising concerns about how much the tax hike would add to their staff costs.

She explained: "I know that this is a difficult choice. I do not take this decision lightly. We are asking business to contribute more, and I know that there will be impacts of this measure felt beyond businesses, too as the OBR have set out today. But in the circumstances that I have inherited, it is the right choice to make."

The National Living Wage for people ages 21 and over will also rise by 6.7 per cent to £12.21 an hour next April, Ms Reeves announced. Ms Reeves said the government is moving towards "a single adult rate" which will be phased in over time and announced a significant increase to the minimum wage for younger workers.

The minimum wage for 18 to 20 year olds will rise by £1.40 to £10 an hour - an increase of 16.3 per cent, while the rate for 16 and 17 year olds will rise by 18 per cent, to £7.55. She said the minimum wage increase was "a Labour policy to protect working people being delivered by a Labour government".

Also announced today, there will be an increase from £5,000 to £10,500 to the Employment Allowance for small businesses, which allows eligible employers to reduce their national insurance liability.

"This means 865,000 employers won’t pay any national insurance at all next year, and over one million will pay the same or less as they did previously," she said. "This will allow a small business to employ the equivalent of four full-time workers on the national living wage without paying any national insurance on their wages."

Met with cheers around the Commons, Ms Reeves also announced the price of wine and spirits is set to rise, but pints in pubs will cost a penny less. Alcohol duty rates on non-draught products will increase in line with RPI from February next year, Ms Reeves said, while duty on draught products will be cut by 1.7 per cent, which she said this would mean "a penny off a pint in the pub".

Heading into the budget, many operators were concerned about what would happen to an Covid-era relief on business rates that were scheduled to end next Spring. Businesses were given a 75 percent discount on business rates relief in 2020 to ease the impact of Covid-19, and this was due to end in March 2025, leaving businesses facing a fourfold increase, but today Reeves extended this.

"I will today provide 40% relief on business rates for the retail, hospitality and leisure industry in 2025-26 up to a cap of 110,000 pounds per business," Reeves said.

Reacting to today’s budget, Nick de Sousa, owner of popular Chorlton restaurant, The Lead Station and Tariff and Dale in the Northern Quarter said: “The business rates relief is welcome, albeit at a lower level than it is currently.

“The big ones are the NI and minimum wage, both of which disproportionately affect hospitality. Not entirely sure where she thinks we get 6.7% from, but by far the biggest cost is wages, to add to that cost through mandatory pay rates and NI contributions is bonkers.

“For 18-20 year-olds we often offer the first opportunity into employment but post pandemic there’s been a massive increase in minimum wage which is simply not affordable by the industry. There’s been a higher number of high profile failures in the sector and businesses are struggling, even the big players aren’t making as much.

“Coupled with everything that’s gone on in the wider economy it means that hospitality, which is very labour heavy, it’s really difficult. This isn’t going to help anyone, it is very difficult, it’s not just us that will feel the pain, it’s making life exceptionally difficult for independent operators.

“I know there’s an employment allowance increase too, but across my businesses we may have hundreds of thousands in wages so it doesn’t touch the sides.

“I think that the general public have been frightened by what might be coming down the road. I hope that we have a strong festive trading period but how quickly this budget impacts the wider economy is the determining factor.

“Really we need people to be confident to come out and eat and drink. It’s difficult to be optimistic, but I just hope the economy will grow and we can get people out eating and drinking.”

Nick Gregory, Managing Director of food hall Society in Manchester city centre says that in terms of the wider industry it’s been a ‘quadruple whammy’ in terms of the measures announced today.

He said: “With wages and national insurance all increasing and the threshold going down, for the wider industry that's a bit of a horror show.

“However, for us, it’s kind of balanced so the move on draught alcohol helps us, while on the consumer side the freeze on income tax thresholds, fuel duty freeze and so on could be good for getting people out.

“Our model is good because we're a collection of independents, so the employer's allowance relief is going up will help the six independent businesses.”

He admits for the wider industry though, today’s budget is difficult, especially for small independent businesses and what it could mean for the high street.

"The impact has been seen on lots of smaller towns and cities where you have empty shops. The government needs to sit up and listen. Manchester to a degree is protected in the centre as it's so vibrant and more money being a world city, but there really needs to be more spokespeople in hospitality for these very issues.”

Tom McNeeney, Head Chef at The Oxford Pub in Rochdale, said yesterday that he was “bracing for impact’. While the minimum wage increase was expected, he said the business rate relief being extended but only to 40 per cent, would ‘effectively double’ his business rates.

“They’ve conceded that there now needs to be business rates reform but not until 2026, I just don’t know how many businesses will still be around then,” he said today.

“We’re not against the NI increase but there has to be some give and take, and for hospitality operators there’s been a lot of take. Rachel Reeves made a big thing of making it better for the working person, but I’m a working person too and it’s left a bitter taste. In going after big corporations, the smaller businesses have been swept up in it all.

“The contempt towards hospitality in this budget is staggering,” he added.

Also responding to the Chancellor of the Exchequer’s Budget statement Ash Corbett-Collins, Chairman of CAMRA, the Campaign for Real Ale, said: “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.

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.”

Meanwhile, on the lower rate of business rates for retail, hospitality and leisure businesses could be a 'gamechanger' for pubs in England.

"If this is done right and we get a fairer rates regime which ends the system where our pubs are penalised with unfair bills, this would help save community locals up and down the country.

“Until a new, fairer system is in force in 2026/27, we are pleased to see that discounts on business rates bills for pubs will be extended into the next financial year, albeit a lower 40%. However, the Treasury should monitor the impact that this reduction in support is having on struggling community pubs to make sure more businesses aren’t forced to close their doors for good.”