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Oct 28, 2026|9:55 pm GMT
The hospitality industry had high hopes for yesterday’s Budget and, while it didn’t deliver any outright calamities, it also offered little in the way of support. Independent operators stand to benefit from an increase in the Small Business Rates Relief, and RHL rates remain frozen for two years. VAT and employer NIC are unchanged, though the national living wage rises 3.9% from April and alcohol duty increases in Feburary. Here, we discuss the Budget and its implications for Hospitality operators in more detail.
New PM Andy Burnham promised “growth in every postcode” when he took the job and pledged back in July to cut business rates for pubs, clubs, and live music venues. A local approach to growth is a change from the policies of Starmer’s Labour Government, which struggled to balance workers’ rights with its own growth agenda and sent employment costs soaring even as food, fuel, energy, and inflation put similar pressure on margins. UKHospitality estimates that the sector lost almost 100,000 jobs between 2024 and 2026, with younger and part-time workers among those most affected.
Having promised ‘breathing space’ for both businesses and consumers ahead of yesterday’s Budget, the Chancellor introduced the Autumn Budget as one for “British businesses, big and small” and committed to sticking to Rachel Reeves’s fiscal rules.
Arguably one of the most innovative Budgets we’ve seen in years, it offers substantial relief to smaller high street businesses, though the impact on larger operators is muted and many of the provisions the industry hoped for didn’t come to pass.
As expected, the National Living Wage (NLW) will rise 3.9% for over-21s from April 2027, taking it to £13.21 an hour. Healey has slowed the previous Government’s push towards pay parity across age groups, with National Minimum Wage (NMW) for workers aged 18-20 rising by the same amount to £11.27 an hour. The latest ONS figures put UK inflation (CPI) at 3.5% in the 12 months through to September, so this is an above-inflation rise.
Around 330,000 hospitality workers are thought to be on NMW in the UK, meaning even relatively modest hourly increases can have a significant cumulative impact across the industry. And that’s before any pay rises for staff paid above NMW, which are needed to maintain pay differentials between senior and junior staff.
UKHospitality Chief Executive Allen Simpson said on Tuesday ahead of the Budget: “For a labour-intensive sector like hospitality, wage increases of this scale represent a considerable additional burden that many businesses will struggle to absorb.”
New rates come into effect April 2027
| Aged 21+ | Aged 18–20 | |
|---|---|---|
| Current hourly rate | £12.71 | £10.85 |
| New hourly rate | £13.21 | £11.27 |
| Hourly increase | £0.50 | £0.42 |
| Additional annual pay, 25 hours/week | £637 | £546 |
| Additional annual pay, 37.5 hours/week | £975 | £819 |
Figures assume 52 paid weeks and show direct gross wage increases only. Employer National Insurance, pension contributions and consequential increases for other staff are excluded.
Probably one of the hottest anticipated changes given the announcement in July that the PM was cutting business rates by 20% for eligible pubs, social clubs and live music venues. Restaurants, cafes and hotels missed out on these provisions at the time.
Yesterday, the Chancellor announced an increase to Small Business Rates Relief for qualifying retail, hospitality and leisure (RHL) from £12,000 to £18,000 in rateable value from April 2027. It aims to help smaller, independent high street venues and will mean 70,000 RHL businesses no longer need to pay rates at all.
While large operators and those with multiple venues won’t qualify for the Rates Relief, the Budget also introduced a rates freeze in real terms for 2027/2028 and 2028/2029 for qualifying RHL properties in England. This means operators will not be subject to above-inflation rises during those two years, though the cap excludes rises resulting from property improvements.
Hospitality provides 31% of first jobs for 16–24 year olds, and is a right of passage for many. The Chancellor committed funding to help boost youth employment rates, including £100m over the next two years to expand local apprenticeships and support employers creating apprenticeship opportunities.
This is in addition to the Youth Employment and Skills Package announced in Spring 2026, which included a £3000 Youth Jobs Grant for those hiring eligible unemployed young people.
As expected, alcohol duty will rise in line with the retail price index (RPI) from February 2027, increasing the cost pressures on pubs.
However, the Chancellor did announce £10m alcohol duty relief for around 2,000 small British brewers and producers. The relief will be delivered through discounts on qualifying products, the benefit to hospitality operators will depend on whether producers choose to pass on that discount.
Burnham’s pledge to devolve funding to the local authorities was a focus of his Government’s first Budget and included new powers for Mayors and Strategic Authorities. Healey confirmed that, from 2026, Strategic Authorities will be able to introduce an overnight visitors’ levy in their regions.
This will likely increase costs for both foreign and national tourists, making hotel stays more expensive. It will also increase the admin burden on hotel operators, especially those running venues across multiple Strategic Authorities.
The Treasury will pause tariffs on 101 food products from 26th November 2026 – 31st December 2028 to curb supermarket prices for consumers. Tariff suspensions typically apply across the entire supply chain, so hospitality operators should also benefit from lower-priced goods, including plant-based milks, chocolate, baked beans and dried fruits.
The increase in Employer National Insurance Contributions (NIC), introduced in Labour’s first Budget of 2024, was seen at the time as a blow to already struggling businesses.
Despite calls from UK businesses to cut employer NIC for under-25s, the Chancellor has left NIC untouched. This is a blow to hospitality operators, particularly those hoping for the rumoured increase in the secondary threshold. Instead, the sector faces higher employment costs from NLW rises with no relief from employer NIC.
As part of its #VATstheproblem campaign, the trade association UKHospitality has been campaigning for a VAT reduction to 10% for the industry, arguing that the 20% rate disadvantages UK operators compared to international counterparts and stops them investing. Despite this campaigning and a petition that reached 400,000 signatures in early October, the Budget offered no VAT reduction or relief for hospitality.
Though the trade association will continue to push for a VAT reduction, its Chief Executive, Allen Simpson, told The Caterer yesterday: “This is the first budget in several years to deliver any positive news for hospitality at all, and it shows that forceful, sustained sectoral campaigning works. We must carry on going to win the VAT cut we so badly need.”
The Chancellor promised ‘breathing space’ and, while the Business Rates intervention is a nod to the pressure on the sector, it does little to offset rising NLW, alcohol duties, or alleviate the myriad of challenges hospitality operators face. Many of the provisions the sector was hoping for – VAT relief, energy support, or reduced employer national insurance contributions – were absent.
While yesterday’s Budget might not have been quite the reprieve hospitality operators were hoping for, after years of rising costs, the absence of any significant additional expenses might just be the ‘breathing space’ the sector needs.
4 November | 11am GMT
Wondering what yesterday’s announcements mean for your business, and what else to plan for in 2027? Join Fourth’s expert panel for a closer look at the impact of this Budget, the employment legislation coming into effect next year, and how to plan for it.
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