Industry players have long argued that the hospitality sector faces one of the heaviest tax burdens in the UK economy, calling for urgent action from the Government’s Autumn Budget to reduce the cost of doing business. The sector has been under strain due to rising operating costs and reduced consumer demand, leading to declining profit margins and business closures:
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Since March 2020, there have been 62 net closures of hospitality businesses per month, leaving the sector 14.2% smaller
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Cash reserves are exceptionally weak: 29% of operators have none, and 73% have fewer than six months’ reserves
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Independent and casual dining restaurants have seen the greatest impact, with their numbers reducing by almost 23% compared to pre-COVID-19, reflecting their limited capacity to absorb rising costs and minimal reserves
While the Chancellor’s announcements included measures that acknowledge the sector’s importance to the economy, hospitality firms are disappointed that the reforms fell short of delivering more transformational relief.
Business rates reform
The Chancellor announced a change to how business rates – the tax on commercial properties – will be calculated. The current 40% discount for retail, hospitality and leisure properties (which is capped at £110,000 per business) will end on 31 March 2026. It will be replaced by a new structure with a permanently lower multiplier (5p below standard rates). There will be no cap on support.
However, the rateable value of some properties will increase significantly: by 76% for accommodation businesses, 30% for pubs and 14% for restaurants and cafes.
This rise in rateable values means many businesses will still see their overall tax bills rise, despite the reduced multiplier. Businesses with large estates or high-value sites will be impacted the most. Larger operators will also be subject to a supplementary charge (2.8p above the national standard multiplier) on properties with rateable values above £500,000, further increasing their liabilities.
The Government announced a £3.2 billion transitional relief scheme to support businesses paying higher rates. But analysis by UK Hospitality has found that an average pub’s business rates will increase 15%, taking into account the reduced multiplier and transitional relief.
Many firms are concerned how they'll absorb increased costs at a time when margins are already under pressure and cash reserves are low.
Minimum wage increases
Labour costs represent one of the largest outgoings for hospitality businesses, with employment costs due to rise further from April 2026:
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The national living wage will rise to £12.71 (+50p)
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The national minimum wage for 19–20 year olds will increase to £10.85 (+85p)
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Wages for 16–17 year olds and apprentices will rise to £8.00 (+55p)
The proposed national minimum wage and national living wage increases could add around £1,500 and £900 respectively per full-time employee. The sector has already had to absorb significant wage and national insurance contribution (NIC) increases introduced in April 2025, which cost it £3.4 billion.
As wage differentials between age bands narrow and employment becomes more expensive for younger workers, there could be a knock-on effect across the pay scale as management may feel compelled to increase pay at all levels to incentivise career progression.
A shortage of workers compounds the upwards pressure on labour costs, with over 132,000 vacancies — 48% above pre-pandemic levels.
There's real concern in the sector that these additional labour costs will erode profitability and business closures could escalate. The Chancellor’s announcement that training for apprentices will be fully-funded for SMEs is a positive measure that may go some way to ease the skills gap, but it won't alleviate immediate staffing pressures or wage inflation.
Alcohol duty and tourist tax – further cost headwinds
Further cost increases announced in the Autumn Budget include:
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Alcohol duty to rise with RPI (3.55%) from February 2026 – directly impacting margins for restaurants, pubs and bars
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Tourist tax powers granted to mayors in England
Industry players say that while the tourist tax is similar to measures in Europe, businesses there pay much lower rates of VAT, meaning UK firms aren't competing on a level playing field, potentially making the UK less attractive for tourists.
Freeze on income tax thresholds
Together with an inexorable rise in the cost of doing business, on the demand-side, hospitality firms have also had to contend with lower consumer spend due to the cost of living.
The extension of the freeze on income tax thresholds to 2030-2031 will push more people into higher tax brackets, reducing discretionary spend further. Surveys measuring consumer confidence showed a drop in November 2025 as households have become increasingly pessimistic about their spending, the labour market and the outlook for the UK economy.
Hospitality firms face tougher competition for a shrinking pool of consumer spend, and must make difficult choices around setting prices that maintain margins but risk turning consumers away, or discounting prices but risking profitability.
Historically, in this type of environment, pubs tend to fare slightly better as consumers view them as a lower-cost option, while full-service restaurants and hotels face the most pressure.
Licensing reform
Most firms have welcomed the introduction of a new National Licensing Policy Framework. This is intended to streamline outdated planning and licensing rules and create 'hospitality zones' enabling fast-tracked outdoor dining, extended opening hours and simplified permissions for events. This is positive for urban and destination markets but is expected to have limited benefit for rural and suburban independent businesses.
How we can help
The sector has proved remarkably resilient in the face of these headwinds. Latest company insolvency statistics show accommodation and food services insolvencies in September 2025 remained almost flat year on year (265 v 262). This came after a 19% month-on-month decrease in August 2025, helped by good weather over the summer.
The industry will continue to respond to challenges, but investment and resources will be required.
Debt advisory
Getting the right mix of financing solutions can optimise cash flow and it's vital that businesses have the right funding structures in place. Our experienced debt advisory team helps firms optimise their capital structure by selecting the right facilities with the right lenders. There remains plenty of liquidity in the market, from a wide variety of sources.
Restructuring advisory
If a business is experiencing financial difficulties, seeking restructuring advice early is crucial. Options include operational and financial improvement, seeking further external investment, a company voluntary arrangement (CVA) or a prepack administration. Recent examples include the CVAs of Yolk and Homeslice, Byron raising new equity, and the prepack administration of Gusto.
Restructuring plans
This option can allow a financially-distressed firm to restructure without entering a formal insolvency process. They can be particularly well-suited to help companies with complex capital structures (for example, multi-site or multi-jurisdiction), and have been successfully used by Prezzo, and Tasty Plc.
For more information or insight, contact Philip Stephenson.
