What does the 2024 Autumn Budget mean for UK hospitality?
By Over 100 days passed between Labour’s election victory in July and the new Government’s first budget, delivered on October 30th. Chancellor Rachel Reeves spent that time managing expectations and setting the stage for a budget that meets the Party’s promises to “invest, invest, invest” without resorting to a return to austerity or increasing taxes for working people – though the definition of ‘working people’ became something of a sticking point in the days before the Chancellor stepped up to the despatch box.
The result was protracted speculation around the contents of Labour’s first budget and widespread trepidation from business owners, particularly within the hospitality industry. Most were fearful that the Chancellor’s £40bn in tax rises would be laid at their door. While yesterday’s Autumn Budget saw those fears borne out, it also included an unexpected cut to draft alcohol duties and confirmation around business rate relief.
The hospitality industry’s initial response to the budget has been negative. Trade body UKHospitality labelled the budget the “latest blow” for the industry and estimates it will increase the sector’s annual tax bill by £3bn. The prevailing opinion suggests the Chancellor has turned her back on the high street and heaped yet more pressure on small businesses already at breaking point. Here, we examine the key measures introduced and their impact on UK hospitality.
National Minimum Wage
It was announced ahead of the budget that the Government will raise NMW for over 21s to £12.21 an hour from April 2025, an increase of 6.7% on the current NMW. Hourly rates for 18-20 year olds will also increase to £10 per hour.
Fourth’s research showed that many operators responded to the April 2024 increase in NMW by cutting team sizes and increasing hours for younger workers. Industry-wide, the number of hours worked January – July fell by 7% but increased by nearly 16% for under-21s. With the Treasury moving towards parity in hourly rates among all adults, this isn’t a viable long-term strategy. Maximising efficiency will be critical for operators as they seek a balance, avoiding overworking their teams while ensuring labour costs don’t overwhelm their businesses.
National Insurance Contributions
Under the last government, employers paid National Insurance contributions (NIC) for employees earning over £9,100 annually at a rate of 13.8%. Yesterday’s budget reduces the threshold for NIC to £5,000, with contributions increasing to 15%. The Treasury expects this measure to generate £25bn a year by the end of the forecast period.
Anthony Davis, head of tax at UHY Hacker Young, said the rise in employer NIC was a “huge blow” to businesses and highlighted that “a lot of low-margin sectors like hospitality are going to struggle to cover those new costs.”
In a concession to small businesses (those with less than 40 staff), the Chancellor increased employment allowance – an allowance received by employers with NIC bills of £100,000 or less – from £5,000 to £10,500. The Treasury states that, as a result, more than 860,000 employers won’t be required to pay NI next year, and over 1m businesses will pay the same or less than they did previously.
UK Hospitality’s CEO, Kate Nicholls, estimates that the 1.2% increase in employer NIC equates to an additional £0.5bn in costs for UK hospitality operators. She also warned that lowering the threshold to £5,000 will disproportionately impact the sector, given the industry’s high numbers of part-time workers. She puts the total cost to the sector of rate increases and threshold cuts at £1bn.
Draught alcohol duty
MPs cheered when the Chancellor announced that draught alcohol duty would not rise in line with inflation but would be cut by 1.7%. This equates to 1p for every pint in a pub. While welcome, this cut will do little to offset the rising costs of labour, which many operators will have no choice but to pass on to customers.
The mandatory duty stamp on spirits will also be removed to support spirit producers.
Rates on non-draught duties will still rise in line with the Retail Price Index (RPI) from February 2025.
Business Rates
Retail, hospitality, and leisure businesses currently receive a 75% discount on business rates (BR), capped at £110,000. This discount is due to expire at the end of March next year, meaning many operators were facing a 400% jump in rates.
The Chancellor used the Autumn Budget to confirm a BR reform: a permanent 40% relief for hospitality businesses, maintaining the £110,000 cap. This discount will be funded by a higher multiplier on online business premises.
While many will welcome the certainty, a 40% discount is a far cry from the current 75% reduction and represents a significant increase in operating costs for most businesses.
Employment Hero UK MD, Kevin Fitzgerald, told CityAM that the business rate reform “is light relief alongside changes to national insurance and the minimum wage, which will see more small and medium-sized businesses struggle.”
He added that “the Chancellor says she wants the Government to invest, invest, invest, but all businesses are seeing are barriers to growth.”
Fuel Duty
Fuel duty has been frozen since 2011 and was further cut by 5p by the Conservative government, a measure that was set to expire in March next year. The Treasury estimated that retaining both the cut and the freeze would cost the government over £3bn, and it was widely expected that the government would scrap the 5p cut and increase duty by 7p a litre.
The country breathed a sigh of relief when the Chancellor said that increasing fuel duty next year would be the “wrong choice.” Instead, she promised to retain the 5p cut and freeze fuel duty for another two years.
This is positive news for UK hospitality, which relies heavily on the logistics industry – a sector already running on incredibly tight margins. Any cost increases would likely have been passed onto customers, increasing delivery and ingredient costs for operators. The hospitality industry dodged one bullet yesterday, at least.
Autumn Budget 2024
The Autumn Budget provides little relief to hospitality operators who are already grappling with a myriad of challenges. Despite concessions for small businesses and a reduction in draft alcohol duties, the Chancellor has added extra pressure in the form of yet more rises in labour and operating costs. Operators must also be cognisant of the looming Employment Rights Bill and the potential costs associated with compliance only adding to this burden.
For many hospitality businesses, maintaining profitability, and in some cases survival, now hinges on identifying efficiencies that can deliver meaningful cost savings without sacrificing service quality or employee well-being. Many will likely turn to technology solutions – especially AI – as an means to further streamline their operations and find new ways to optimise their labour deployment, purchasing and food waste.