Budget 2025: Hospitality Sector Faces Mixed Signals as Reeves Delivers Business Rates Reform

Today’s Budget at a glance: 

Chancellor Rachel Reeves today delivered her second Autumn Budget, confirming long-awaited business rates reform for the hospitality and licensed on-trade sector, though industry leaders have cautioned the measures may be insufficient to offset spiralling operational costs.

Business Rates: A Double-Edged Sword

In her address to Parliament, Reeves announced permanently lower business rates multipliers for over 750,000 retail, hospitality and leisure properties from April 2026, describing them as the lowest rates since 1991.

The reforms will introduce a two-tier system, with reduced rates for properties with rateable values under £500,000, funded by higher rates on larger commercial properties, particularly warehouses used by online retailers.

However, the existing 40% business rates relief—currently capped at £110,000 per business—will not be extended at the same level, representing a significant reduction from current support levels.

According to the Office for Budget Responsibility, the measures will reduce receipts by £1.2 billion annually between 2026-27 and 2028-29, though the package becomes broadly revenue-neutral towards the end of the forecast period.

A transitional relief package will cap bill increases following the 2026 revaluation, offering some protection for businesses facing steep rises. The Chancellor justified the reforms as supporting Britain’s high streets, directly calling out online giants whose warehouse-only tax burden has long been cited as creating an unfair competitive landscape.

In the lead up to today’s budget UKHospitality has cautioned that business rates reform alone would not save venues already haemorrhaging jobs and closing at alarming rates.

Kate Nicholls, chair of UKHospitality, recently warned of “blood on the high street” if the Chancellor failed to provide adequate support. The organisation’s analysis of Office for National Statistics data revealed 170,000 fewer people on payroll across the UK economy since last year’s October Budget, with hospitality accounting for more than half of all job losses.

The sector has been recording two site closures per day during the first nine months of 2025, with a third of businesses cutting opening hours due to staffing cost pressures. Two-thirds have reduced staff hours and headcount as a direct result of measures introduced in the 2024 Budget.

Michael Shapiro, Commercial Property partner at law firm Spencer West LLP said: “It’s evident this is a “political” budget without producing anything to stimulate the mantra of “growth, growth, growth.”

“Despite lowering business rates for many retail and hospitality businesses through higher rates on warehouses used by online retail companies, the fact remains that the local high street has many empty retail and hospitality premises.

Speaking with many commercial landlords and tenants which make up my client base, the main driver is the level of business rates, and the way that the business rating system works.

“While an overhaul is scheduled for April 2026, this is something that needs to be addressed with urgency. Hospitality and retail businesses continue to struggle through the current system, which is further compounded by the rise in NI in the last Budget and the incoming rise to the minimum wage in January.

“The domino effect of this on retail and hospitality workers, builders, and tradespeople cannot be underestimated, and the impact is clear to see by walking along any high street.”

The Cost Pressure Cooker

The business rates announcement must be viewed against a backdrop of relentless cost inflation across the hospitality sector. The Chancellor confirmed a 4.1% increase to the National Living Wage, rising from £12.21 to £12.71 per hour from April 2026. For minimum wage workers aged 18-20, the increase is even steeper at 8.5%, taking the rate to £10.85 per hour.

While supporting fair wages for workers, these increases compound existing pressures from last year’s Budget measures, particularly changes to employers’ National Insurance Contribution thresholds, which have disproportionately affected part-time and flexible employment—the backbone of hospitality staffing models.

Industry executives have warned the cumulative impact means profit margins are no longer matching levels from 12 months ago. Hospitality operators report they simply cannot maintain the rate of price increases needed to offset rising costs without further damaging consumer demand, which remains fragile amid continued cost-of-living pressures.

What the Budget Means for Operators

For licensed premises and hospitality venues, the immediate picture is one of continued pressure:

From April 2026:

• New business rates multipliers taking effect (exact rates to be confirmed)
• End of 40% retail, hospitality and leisure relief in its current form
• National Living Wage rises to £12.71 per hour
• Minimum wage for 18-20 year olds increases to £10.85 per hour
• New rateable values following the 2026 revaluation

Additional Budget Measures Affecting the Sector:

• Extension of income tax threshold freeze to 2030 (fiscal drag reducing consumer disposable income)
• Abolition of bingo duty from April 2026
• Remote gaming duty increase from 21% to 40% next year
• Fuel duty freeze extended only until April 2026
• £2,000 cap on salary sacrifice pension contributions from 2029

The Growth Dilemma

The Chancellor’s Budget comes amid a stark economic backdrop. UK growth slowed to just 0.1% in the quarter ending September, while unemployment rose to 5%—the highest level since 2021. The Office for Budget Responsibility has reportedly downgraded growth forecasts for each of the next five years.

Hospitality operators had called for a range of measures beyond business rates reform, including VAT cuts, reversal of National Insurance Contribution increases, and greater stability in regulatory policy. The sector argues it has repeatedly demonstrated an ability to deliver rapid growth and job creation when given favourable conditions, but the current policy environment makes expansion increasingly difficult.

Several trade bodies, including the British Institute of Innkeeping and the Night-Time Industries Association, had warned ahead of the Budget that without comprehensive support, the sector faces further closures and job losses through 2026.

Looking Ahead

For CLH News readers, the key takeaway appears to be that while business rates reform represents a structural improvement to the taxation landscape, it arrives as part of a Budget package that maintains significant cost pressures on labour-intensive businesses.

Operators will need to model carefully how the new business rates multipliers affect their individual properties, balanced against wage inflation, potential revaluation impacts, and continued economic uncertainty. The removal of the current level of rates relief may offset much of the benefit from lower multipliers for some venues.

The Chancellor has framed the Budget as supporting growth, but industry leaders remain deeply sceptical. With 13 consecutive months of falling employment in hospitality, many operators are in survival mode rather than growth mode.

As Kate Nicholls noted ahead of the Budget, this is “the most unpredictable Budget” industry veterans have seen in two decades. For the thousands of pubs, bars, restaurants and hotels navigating these waters, the coming months will prove whether the reforms deliver genuine relief or merely tinker at the edges while fundamental cost challenges persist.