Budget 2025 tightens the squeeze on hospitality as tax drag bites

The hospitality sector has warned that the Chancellor’s Autumn Budget could intensify pressure on venues already trading on narrow margins. Industry leaders point to a likely squeeze on consumer spending power, rising wage costs and business rates revaluation as the main risks over the next year.

Rachel Reeves told Parliament the Budget was designed to restore stability to the public finances while supporting households through the cost of living. Hospitality groups say the package still lands at a fragile moment for eating, drinking and leisure businesses, many of which depend on discretionary spend.

Demand pressure first: the slow grind of frozen thresholds

Industry figures say the most significant impact may come not from a single new tax, but from the continued freeze in income tax and National Insurance thresholds. Holding thresholds flat while wages rise draws more people into paying tax and pushes others into higher bands. Over time, this functions as a sizeable tax rise without headline rate changes.

Paul Johnson, provost of The Queen’s College, Oxford, former IFS director and author of Follow the Money, has described prolonged freezes as a fundamental shift in the tax system, with millions more taxpayers and higher-rate taxpayers expected by the end of the decade. The Office for Budget Responsibility also projects a lasting rise in the tax take as a share of GDP into the early 2030s.

For hospitality, operators argue, the link is direct. As households face higher effective tax bills, disposable income tightens. Trade bodies warn that this reduces the frequency of meals out, trips to pubs and late-night spending, just as venues are trying to rebuild demand.

Labour cost second: wage rises and the age-band pinch

From April 2026, the National Living Wage for those aged 21 and over will rise by 4.1% to £12.71 an hour, while pay for 18 to 20-year-olds increases by 8.5% to £10.85. The Government says this supports low-paid workers and lifts living standards.

Hospitality leaders accept that wages rise annually and many businesses plan for that trend. Their concern is the pace and shape of the increase, especially the narrowing gap between younger workers and the 21-plus rate. Employers who rely heavily on young staff say the faster alignment compresses pay structures and creates pressure to lift wages for longer-serving employees, pushing payroll costs higher than the minimum wage figures alone suggest.

The Night Time Industries Association (NTIA) called the Budget a “hammer blow” for venues trading late into the evening. Its chief executive, Michael Kill, warned that many sites are operating on the edge and could close early in the new year when quarterly VAT bills, rent payments and other liabilities fall due in a traditionally weaker trading period.

Business rates third: reform welcomed, but revaluation shock feared

The Budget introduced a permanent cut to the business rates multiplier for hospitality, retail and leisure properties in England, alongside a continued 5p discount. The Treasury says this provides long-term certainty for the high street.

UKHospitality acknowledged the intent but warned that the relief may be outweighed by new rateable values. In plain terms, even with a lower multiplier, higher valuations mean the taxable base rises, so the final bill can still increase. The trade body said published valuations point to large average uplifts for accommodation, pubs and restaurants, leaving many businesses facing higher overall costs despite the headline reform. Kate Nicholls, chair of UKHospitality, argued that the discount is far smaller than previously expected and does not close the gap with other sectors.

The British Beer and Pub Association reached a similar conclusion. Emma McClarkin OBE, its chief executive, said the lower multipliers were welcome but “vastly insufficient”, with many pubs paying more after revaluation and some entering the system for the first time. She added that higher beer duty and wages would be difficult to absorb without passing costs to consumers.

VAT and local levies: a long-running gap in support

Many in hospitality had hoped the Budget would include movement on VAT. UKHospitality has repeatedly called for a lower hospitality rate, saying it would give venues room to invest, protect jobs and avoid further price rises. The absence of VAT reform has been interpreted by some operators as a missed opportunity to support demand and ease cashflow.

The Budget also granted English metro mayors powers to introduce local levies on overnight stays, a measure often described as a tourist tax. The Government says this could help fund local services and visitor infrastructure. Hoteliers and some city-centre businesses are concerned it may raise prices for visitors and add to a recovery that remains uneven.

What this means for fish and chip shops

For fish and chip businesses, the same broad pressures apply, but with a specific labour twist. Many shops employ younger, part-time staff for weekend and peak-time cover. Owners generally expect annual minimum wage rises, yet the faster uplift for 18 to 20-year-olds compared with the 21-plus rate is seen as disruptive. The narrowing gap compresses the pay ladder, making it harder to reward experience without lifting the whole wage bill.

Shops also face the demand risk tied to threshold freezes. A gradual squeeze on disposable income can reduce treat spending and footfall, even where menu prices have already risen sharply in recent years.

A real-world timing problem

Operators say the combined effect arrives at an awkward point in the calendar. Hospitality typically faces a post-Christmas dip in trade, yet January also brings VAT deadlines, quarterly rents and re-set wage costs. Industry leaders argue that this collision of weaker demand and higher fixed costs is what turns policy adjustments into closure risks for marginal venues.

A wider policy question

The Budget highlights a trade-off at the heart of current fiscal policy. Wage floors are rising and public services need funding, but much of the tax increase is delivered through frozen thresholds. For hospitality, this creates a double exposure: higher operating costs as customers feel less free to spend.

Whether the Government’s approach supports consumption through higher pay, or suppresses it through sustained tax drag, will become clearer over the coming year. For now, the industry’s warning is consistent: relief on one line of the balance sheet is being overtaken by pressure on the others.