The Chancellor announced she will continue the business rates relief from April 2025 for hospitality venues, but at a lower rate of 40% instead of the current 75% set to expire on 31 March.
The 40 per cent rates relief, up to a cap of £110,000 per business, will be in place through 2026.
The chancellor also announced hikes in employers National Insurance contributions Ms Reeves said the amount businesses will pay on their employees’ national insurance contributions will increase from 13.8% to 15% from April 2025, with the current £9,100 annual threshold lowered to £5,000, in what she called a “difficult choice” to make.
Laying out her budget the chancellor said Labour intends to “introduce two permanently lower tax rates for retail, hospitality and leisure properties which make up the backbone of high streets across the country” from 2026 to 2027.
With only 1-in-4 businesses currently profitable, this additional cost will, the British Institute of Innkeeping says, severely impact huge numbers of pubs across the sector, leaving them facing difficult decisions on whether they will be able to continue trading.
Whilst the announcement of a full reform of the business rates system in 26/27, with permanently lower rates to rebalance the tax regime, is welcome, it is long overdue and does not they say protect our pubs in the meantime.
In addition, the increase in employer National Insurance contributions and the National Minimum Wage from April 2025, will have a huge impact on their profitability and threaten their existence.
Increased Costs
BII CEO, Steve Alton, commented:
“These are businesses at the heart of their communities, who have invested heavily since the pandemic in their pubs, making them safe, welcoming spaces, open to all. As we head towards the festive period, they will continue to ensure their customers can connect with friends, family and their wider community, but the quieter winter months will be incredibly tough, especially with lower rate relief of 40% on business rates, as well as increased employment costs.
“We will continue to make the case for more support, alongside our members taking their challenges directly to their local MPs. This support needs to be an actual reduction in the unfair level of tax our pubs pay with a priority on a specific VAT reduction for pubs, as well as a full and urgent business rate reform, as a recognition of their vital role in connecting communities, providing local employment and supporting a host of other local businesses.
“Without this investment in their futures, we stand to lose many more of these unique and essential community hubs.”
Further Support Needed
Giles Fuchs, Owner and co-Managing Director of Burgh Island Hotel said:
“Whilst Burgh is in a good position to deal with these extra costs announced by the Chancellor, many are less fortunate. An increase in National Insurance Contributions will compound the challenges faced by many hospitality businesses, particularly those already managing tight profit margins. For an industry that plays a crucial role in employment across the UK, being the third-largest employer and contributing £93bn to the economy annually, the NIC hike risks stifling growth at a critical time.”
“The upcoming 6.7% increase in the minimum wage in April 2025 adds further financial strain, as hospitality businesses will face significantly higher payroll costs. Coupled with the end of the 75% business rates relief for retail, hospitality and leisure businesses next April, this represents an additional blow to a sector grappling with soaring operational costs. Without this relief, the sector faces a battle to maintain its role in supporting local economies and driving tourism.”
“While supporting fair wages is vital, the compounded pressures of increased NICs, rate relief withdrawal, and rising wages will be tough for the sector.”
“Further targeted support, such as the return of VAT relief would be welcome. The Government has said boosting economic growth is its top priority and we have to hope that they can deliver this so it will buoy up all sectors including hospitality, which plays such a vital role in the economy.”
NTIA CEO Michael Kill States:
“We are in one of the toughest trading environments the UK has seen in decades for our sector, fraught with a legacy of challenges from previous crises. While the Chancellor has listened to our plight, the extended business rates relief is a minor concession amongst the array of tax increases and fiscal shifts, which will take some time to evaluate and consider regarding sector impacts. However, in simple terms, it is still double the contribution of the current business rates.”
“This relief will be immediately undercut by increased NIC Employer contributions and thresholds with increased individual employer contributions to businesses, net increase in alcohol duty and overarching workforce increases, although rightly intended to support the workforce, will have severe repercussions for already struggling businesses across the sector. This shows an acknowledgement of core businesses within nightlife but lacks consideration for the broader industry outside of bricks and mortar businesses and the vital and diverse role our night-time economy plays within our communities and the UK’s culture and economy.”
Devil in the Detail
Chris Grose, Rating Director, Hartnell Taylor Cook, commented:
“As ever, the devil is in the detail on today’s announcement of a decreased rate in the pound for retail, hospitality and leisure properties. Ultimately, it is disappointing that no other reforms having been announced to combat the high rate in the pound, which is the root cause of the business rates problem.”
The new rate will apply to retail hospitality and leisure properties with a rateable value between £51,000 and £500,000 which suggests it will be a lot less generous than the current relief of 75% being reduced to 40% from April 2025. The actual rates in the pound will not be known until autumn 2025.
“Determining who should pay this lower rate is equally challenging in light of the confusion surrounding what exactly qualifies as a retail property. Covid grants for retailers lead to a surge in properties claiming to fall under the umbrella to qualify – how might this be navigated? And what about empty retail units being used for mitigation or storage – which rate might they pay?”
“These questions must be addressed for government to successfully support the retail, hospitality and leisure industries.”
Looking ahead: the 2026 revaluation he added: “It appears the 2026 revaluation of business rates is going ahead. While this may give business certainty on future payments, this does not address the inherent issues with the rates system and the current high rate in the pound. The real solution is to reduce the rate in the pound and reform council tax to pay for it.”
Reduce Staffing
Anthony Davies, Partner and Head of Tax at UHY Hacker Young, the national accountancy group, says:
“The rise in Employers’ National Insurance rates is a huge blow to businesses. A lot of low-margin sectors like hospitality and retail 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.”
“Coming on the back the increase in the National Minimum Wage this is the classic ‘double whammy’ for the retail and hospitality sectors.”
34 billion contribution
Chris Jowsey, Chief Executive Officer at Admiral Taverns, said:
“Whilst we welcome the Chancellor’s announcement to cut draught beer duty for pubs which we repeatedly campaigned for and provide a short extension to the small business rates relief at a lower level, we are disappointed with the lack of meaningful incentives to invest and grow. Community pubs remain massively overtaxed and with the wider alcohol duty still increasing, the cost of doing business is only rising for our publicans.”
“Today was a prime opportunity for the new government to show its support for a sector which contributes over £34 billion to the UK economy each year and provides over one million jobs. Unfortunately, the cumulative impact of these measures will cost community pubs significantly.”
“Given we will still see business rates double for a lot of pubs, it is even more important now that the Government uses the next two years to implement a proper reform of the business rates system which is fairer for pubs, an industry who is one of the most heavily taxed business sectors. This will ensure the longevity of the much-loved institution, as well as the many communities, jobs and livelihoods which rely on it.”
