The recent Budget provided little to no relief to hospitality, leisure and tourism businesses - a sector battling relentless increases to costs, wages and taxes, compounded by falling disposable income levels among consumers.
No VAT relief
Each year, as the fiscal events roll around, the industry campaigns for some much-needed relief. At the top of the wish list is a cut to the VAT rate for the sector, which at 20% (standard rate) remains one of the highest rates in Europe. Many of our neighbours have a reduced rate for the sector, some as low as 6%, which does put our domestic industry at a competitive disadvantage. Unfortunately, this was not forthcoming in the 2025 Budget, or for that matter, was there any other significant relief.
Changes to business rates
There was an attempt to portray the reduction in the business rates multipliers as a positive outcome for the sector. The Chancellor announced the small business multiplier will fall from 49.9p in 2025–26 to 43.2p in 2026–27, while the standard multiplier will reduce from 55.5p to 48p. However, as this is timed to coincide with the falling away of the 40% Retail, Hospitality and Leisure relief scheme in April 2026, and increases to rateable values, this is very much a real terms increase for the vast majority of businesses, and yet another drain on cashflow and margins.
Analysis from UKHospitality suggests even with the reduced multiplier and transitional relief, the average pub will pay £12,900 more in business rates over three years, while an average hotel’s rates are set to increase by £205,200 – a climb of 76% for pubs and 115% for hotels*.
NMW lift to increase employment costs
National Minimum Wage (NMW) is set to go up again in April 2026, recommended by the Low Pay Commission, so that individuals can maintain living standards. It is, however, businesses that are expected to bear the additional cost burden of this increase, with no sign of any relief or help from the Government to offset this additional cost.
With wage rates for 16–17 and 18–20-year-olds set to rise by 6% and 8.5% respectively, and the rate for those 21 and over increasing by 4.1%, businesses face a substantial increase in the cost of employing staff—an expense that many will struggle to offset through higher prices.
Tourism tax
Also announced ahead of the budget was the news that English regional mayors will be given new powers to charge tourists a ‘tax’ for staying overnight. Since this announcement, we have already seen momentum build in multiple different areas, with consultations set to commence as to how and when these levies may be introduced. The concerns potential tourism taxes raise have been well documented, and we previously explored whether their introduction would help or hurt local tourism. They now feel like an inevitability rather than a possibility for many different areas.
Armstrong Watson has vast experience helping the hospitality, leisure and tourism sector overcome the challenging current business environment. If you would like to discuss any of the above issues and how they may affect your business, please do not hesitate to contact us.
