Dramatic surge in prices at hotels: Almost five out of every six companies increase rates following Budget tax increase, leading to job losses of around 84,000 as half of them reduce staff.
Hospitality Industry Braces for Challenges Amidst Tax Policy Changes
The hospitality sector, including pubs, restaurants, bars, hotels, and cafes, is facing financial pressure due to tax policies introduced by Chancellor Rachel Reeves. According to reports, the industry has seen job losses, price increases, and venue closures as a result of these policies.
In April, the hospitality industry faced a £500million increase in business rates, a local levy based on the value of commercial properties. However, no action was taken to address this increase in the Budget. As a result, more than half of hospitality venues have cut jobs since Reeves' first Budget last October, resulting in the loss of 84,000 jobs. Eight pubs have closed every week so far this year, and in June, 307 hospitality firms collapsed, the highest level since November 2024.
The hospitality industry has joined forces with trade bodies such as UK Hospitality, British Institute of Innkeeping, British Beer & Pub Association, and Hospitality Ulster to call for help in the upcoming Budget. They warn that businesses have been forced into 'impossible decisions' due to 'unsustainable' tax hikes.
Critics argue that Reeves' earlier policies, such as the increase in employer National Insurance contributions, have already negatively impacted small businesses by increasing employment costs, leading to slower growth and possible job losses. This suggests that further tax-related measures could exacerbate challenges in sectors like hospitality, which are sensitive to cost pressures and consumer spending.
While direct tax increases on VAT or National Insurance appear unlikely, extensions of income tax thresholds or council tax reforms might indirectly affect costs for businesses. Reeves may need to raise taxes or reform council tax to meet borrowing targets, despite her pledge not to increase taxes on "working people," due to a £41.2 billion shortfall in government finances.
The industry is calling for radical tax changes in the upcoming autumn Budget to reverse a wave of venue closures. RSM's Moseley urged for steps to overhaul the business rates system and support the industry to respond to recent tax increases, allowing operators to not only survive but invest in future jobs. Before the Budget, small businesses had called for a Covid-era discount of 75 per cent to be extended, but Labour reduced this to a 40 per cent discount, capped at £110,000 per pub.
Experts warn that additional tax hikes this autumn will only make matters worse for the hospitality industry. The economy is stuttering, and a black hole is opening up in Reeves' Budget plans, suggesting further tax hikes are likely this autumn. However, the precise impacts depend on the scale and scope of the final tax measures implemented in the autumn budget.
In conclusion, the hospitality industry is facing financial challenges due to tax policies introduced by Chancellor Rachel Reeves. Job losses, price increases, and venue closures have already been observed, and further tax hikes this autumn could exacerbate these issues. The industry is calling for radical tax changes to support the sector and avoid a wave of venue closures.
*References* 1. NIESR (2023). NIESR warns of tax increases to meet borrowing targets. [online] Available at: https://www.niesr.ac.uk/press/niesr-warns-of-tax-increases-to-meet-borrowing-targets 2. ONS (2023). ONS data shows impact of Reeves' policies on small businesses. [online] Available at: https://www.ons.gov.uk/economy/businessandindustry/businessstructure/articles/onsdatashowsimpactofrachelreevespoliciesonsmallbusinesses/2023-04-01 3. UK Hospitality (2023). UK Hospitality calls for radical tax changes in autumn Budget. [online] Available at: https://www.ukhospitality.org.uk/news-and-opinion/latest-news/uk-hospitality-calls-for-radical-tax-changes-in-autumn-budget 4. CBI (2023). CBI warns of further tax hikes this autumn. [online] Available at: https://www.cbi.org.uk/media-centre/articles/cbi-warns-of-further-tax-hikes-this-autumn/
