Hospitality and the Autumn Budget - A sector in need of relief

In summary

• The hospitality sector has been disproportionately affected by increases to the minimum wage and national insurance (NI), particularly impacting young and part-time workers
• Proposed changes to zero-hours contracts could restrict flexibility, though many businesses and employees rely on them
• A reduction in VAT would support margins but is considered unlikely due to the cost to government
• Business rates reform is expected, and hospitality businesses are encouraged to review their valuations to avoid overpaying
• Businesses should focus on creative, low-cost employee benefits to encourage staff retention 

The hospitality sector has long been an indicator of the health of the broader economy: vibrant when times are good, vulnerable when they’re not. Following a somewhat bruising 2024 Budget, the industry finds itself at a crossroads, facing rising costs, regulatory uncertainty and a workforce crisis.

With the 2025 Autumn Budget looming, many in the sector are hoping for support. But as Lynne Blakey, sector specialist, warns: “It’s likely to be more of what we’ve already got.”

The 2024 Budget dealt a heavy blow to hospitality. “It was really hard for the sector,” says Blakey. “We talk a lot about the national insurance (NI) rate rise, but the Budget also brought many people into the NI regime for the first time.”

Hospitality employs a disproportionately high number of young and part-time workers, groups previously exempt National Insurance if they earned below certain thresholds. The result? A triple hit of higher NI contributions, a broader pool of affected employees and higher than average minimum wage increases (since the under-21s rate increased by more than 16%, compared with less than 7% for the adult rate).

UKHospitality claim that the industry has borne the brunt of job losses across the UK in recent months, making up a staggering 53% of all redundancies nationwide since the 2024 Budget. The sector has already seen a 4.1% drop in employment, and the organisation warns that the total number of jobs lost could climb to 100,000 by November’s Budget.

Away from the Budget, the sector’s reliance on flexible working arrangements is also under scrutiny. The Employment Rights Bill aims to curb controversial zero-hours contracts, but Blakey believes nuance is needed. “Hospitality businesses rely a lot on zero-hours, and they do have a place,” she says. “They’re important not just for the business but also for individuals fitting work around childcare or studies.”

While the bill seeks to protect workers, there’s concern it could unintentionally undermine flexibility. At the same time, a proposed new body—the Fair Work Agency (FWA), a new executive agency under the Department for Business and Trade (DBT) —will oversee complaints and ensure compliance with employment standards and the minimum wage. It’s designed to unify and strengthen enforcement of employment rights across the UK, providing a single point of contact for workers and employers.

“It’s going to be much easier for employees to make complaints,” Blakey notes. “That’s not a bad thing,” she adds. “People knowing their rights and where to go to protect them is crucially important.” It will, however, push compliance even further up the agenda.

Calls for a reduced VAT rate for hospitality are longstanding. But despite widespread support, Blakey is realistic. “Everybody in the sector would like to see something on VAT, but it’s inordinately expensive,” she says. “The VAT reduction for hospitality during COVID cost around £8 billion. The government just doesn’t have the funds to balance their books by making such a significant concession.”

The negative sentiment is also shared by operators within the industry, who believe continued lack of action will result in more closures, more redundancies and persistently stagnant growth.

Even when VAT was lowered during the pandemic, few businesses passed the savings on to customers. “They used it to increase their margins rather than decrease prices,” Blakey explains. “Margins are incredibly tight. It would give relief and make businesses more viable, but it’s unlikely that a VAT cut would stimulate the economy enough to bring in sufficient revenue to offset the tax loss. “

One area where change is promised is business rates. The government has signalled reform in April 2026, likely to benefit smaller premises, with rateable values under £500,000, but the impact on hospitality will vary. “Some hospitality businesses have high-value properties but not necessarily high profitability,” Blakey warns. “We’ll need to see the detail.”

She urges businesses to act now and recommends sensitivity analysis on cash flows to prepare for potential changes. “Planning is key,” she says. “Make sure you’re not overpaying and understand the potential impact of what’s coming.”

So, what can the sector expect from the Autumn Budget on 26 November? “No significant changes other than rates,” says Blakey. “Hopefully nothing worse, but realistically no concrete support at a time the sector could really use it.”

In that case it will be up to businesses to make the best of it and find smart ways of operating in a challenging environment.

With wage pressures mounting, for instance, Blakey believes retention strategies must evolve. “Hospitality is one of the lower paid sectors and has had a vacancy gap for a while,” she says. “Businesses can’t rely on government help and margins are tight, so they need to think flexibly about benefits.”

Experiential perks, such as meals at restaurants or hotel stays during low periods, can go a long way. “Things people really value don’t have to cost much. Benefits and discounts are proven ways to retain talent.” Blakey suggests. “The sector just can’t afford to do it through pay. There’s too much pressure to keep putting up wages and an inability to pass on such increases to the end consumer.”

For hospitality businesses, the message is clear: prepare, review and adapt. Relief may be limited, but resilience is still firmly within reach.

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