Rachel Reeves presented Labour's Autumn budget on Wednesday, 30th October. 

The changes to business rates, National Insurance and the minimum wage regulations are set to impact UK hospitality businesses – many of whom are still trying to rebound from the disruptions caused by COVID-19. 

Reduced Business Rates Relief

Perhaps the most pertinent of the changes introduced by Labour are to the business rates relief scheme.

Since November 2023, hospitality businesses have benefited from a 75% reduction in their business rates, capped at £110,000 per business. This relief, however, was always temporary. The 75% reduction was set to last until March 31, 2025. But in a blow to many, the Chancellor recently announced that the relief will drop to just 40% for the 2025/26 tax year. Given the financial strain the hospitality industry has been under, this reduction is far from what many had hoped. Research from Altus Group estimates that the average restaurant's rates bill will rise from £5,051 to £12,122.

To provide a bit of context, the government has provided various business rates relief schemes over the past few years, including a 100% exemption in 2021 for retail, hospitality, and leisure businesses.

History of business rates relief

• 2019: The government introduced a discount on business rates for occupied retail properties, aimed initially at easing the burden on high street retailers.
• 2020: This discount was extended to include hospitality and leisure properties to provide support as the industry faced early impacts of COVID-19.
• April 1 - June 30, 2021: Eligible retail, hospitality, and leisure properties received 100% business rates relief, covering the critical period as lockdown restrictions began to ease.
• April 1, 2022 - March 31, 2023: A 50% reduction in business rates was provided for eligible hospitality, retail, and leisure businesses, as the sector worked toward post-pandemic recovery.
• November 2023: A 75% reduction in business rates was introduced, capped at £110,000 per business, with the aim to support ongoing recovery efforts. This relief was set to continue through March 31, 2025.
• April 2025 - March 2026: A reduction in relief to 40% has been announced for retail, hospitality, and leisure businesses, with the same £110,000 cap per business.

Source: Find a Restaurant

More positively, the Chancellor also announced a freeze on the business tax multiplier, which helps calculate business rates based on property values. Meanwhile, Labour has hinted at longer-term support, proposing a permanently reduced rate for retail, hospitality, and leisure (RHL) properties. This would mean a more favourable tax environment in recognition of the industry’s contribution to our high streets – a breath of fresh air in an otherwise tough fiscal landscape.

National Insurance and Wage Increases: A Double Hit

The new budget has set a 1.2% hike in National Insurance contributions for employers, increasing the rate from 13.8% to 15% whilst also lowering the tax-free threshold for National Insurance to £5,000. This measure is projected to generate an extra £25 billion in revenue each year. The hospitality sector, which employs 2.5 million people in the UK, will feel this burden acutely. In an industry where 46% of workers earn minimum wage, the increased National Insurance contributions paired with the new minimum wage hike represents a double blow.

From April the minimum wage for those aged 21 and over will rise from £11.44 to £12.21 per hour, while younger workers aged 18-20 will see their rate increase from £8.60 to £10. Labour’s long-term aim is to eliminate wage disparities based on age, moving towards a single adult rate. For hospitality employers, however, this means higher payroll costs across a workforce where nearly half of staff are under 25.

What’s the Real Impact?

In light of these combined cost increases, small business owners are questioning how much “growth” this budget actually offers. Although there are some concessions, such as an increased tax-free allowance for small businesses with NIC bills under £100,000, this doesn’t alleviate the overwhelming pressures facing many.

For the UK’s hospitality industry, these fiscal measures – though perhaps introduced with good intentions – could prove burdensome. Many businesses are asking where the promised support lies, as rising operational costs make growth a seemingly distant goal. With 2025 on the horizon, it’s crucial that the government considers the strain on small businesses and provides real, lasting relief if it hopes to keep this vibrant sector afloat.