Wed 30th Oct 2024 - UKHospitality: 2025 will be painful for hospitality, with an increased annual tax bill of £3bn for the sector UKHospitality –  2025 will be painful for hospitality, with an increased annual tax bill of £3bn for the sector: UKHospitality has said 2025 will be painful for hospitality, with an increased annual tax bill of £3bn for the sector following today’s (Wednesday, 30 October) Budget. Chancellor Rachel Reeves announced a reform of business rates, which the sector welcomed, but which won’t come into force until 2026-27. The government will introduce two permanently lower tax rates for retail, leisure and hospitality properties, which she intends a higher multiplier for online business premises will pay for. In the meantime, the current 75% discount to business rates, due to expire in April 2025, will be extended but at a reduced rate of 40%, capped at £110,000. The multiplier for 2025-26 will be frozen for small premises but those above £51,000 – which is around 60% of hospitality premises, according to UKHospitality – will rise by CPI (1.7% in September). But as expected, businesses will be hit bye tax rises. Reeves said national insurance contributions by employers will rise by two percentage points, from 13.8% to 15%, and that the threshold at which businesses start paying national insurance on a workers’ earnings will be lowered from £9,100 to £5,000. Reeves went on to say she is increasing employment allowance to help smaller businesses. The employment allowance will increase from £5,000 to £10,500, which the chancellor said will mean 865,000 employers won’t pay any national insurance at all next year. The chancellor also said while alcohol duty on non-draught products will rise in line with RPI from February, she will be cutting draught duty by 1.7%, “which means a penny off the pints at the pubs”. Before delivering the Budget, Reeves had already confirmed that minimum wages will rise in April, with rates for over-21s set to go up 6.7% to £12.21 an hour from £11.44. In addition, the national minimum wage will rise for people aged between 18 and 20-years old from £8.60 to £10 and increase from £6.40 to £7.55 for apprentices. Looking further into the future, the chancellor confirmed that the national living wage will eventually be a single rate for adult workers “over time”. Meanwhile, the lower rate of capital gains tax will rise from 10% to 18%, and the higher rate from 20% to 24%. Reeves also set out her inflation predictions, saying CPI inflation is forecast to average 2.5% this year, 2.6% in 2025, 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029. UKHospitality chief executive Kate Nicholls said: “This Budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt. “In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses. Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40% is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April. All of this means that 2025 will be painful for hospitality, with an increased annual tax bill of £3 billion for the sector. However, there are reasons for longer-term positivity. I am pleased that the chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality. Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.” Sacha Lord, Manchester’s night-time economy advisor, said: “This budget has shown that treating all businesses the same is just no longer sustainable. Restaurants, hotels, pubs, and bars operate on an entirely different model than the leisure and retail sectors, yet our businesses are being treated, taxed and regulated in the same manner. The high street has changed, and the way we approach budgetary decisions and policies must too. Increases to employers' national insurance and the minimum wage will place even more strain on business owners. Increasing these costs without providing support for them to do is a broken model and will only ever lead to more businesses shutting their doors. Business rate reliefs have been a lifeline for hospitality over the past few years. The partial extension of this relief from 75% to 40% will save jobs, but this will still not be enough for many, and we will see restaurants and bars now facing unsustainable increases to their rates bills.” British Institute of Innkeeping chief executive Steve Alton said: “These are businesses at the heart of their communities, who have invested heavily since the pandemic in their pubs, making them safe, welcoming spaces, open to all. As we head towards the festive period, they will continue to ensure their customers can connect with friends, family and their wider community, but the quieter winter months will be incredibly tough, especially with lower rate relief of 40% on business rates, as well as increased employment costs. Without this investment in their futures, we stand to lose many more of these unique and essential community hubs.” Isabelle Shepherd, director in the hospitality team at haysmacintyre, said: “The increase to the national minimum wage and employer’s national insurance contributions means tough decisions will have to be made by hospitality businesses. Imposing higher costs will have significant ripple effects for not only business owners and employees, but consumers too. The natural response from businesses will be to reduce staff headcount and increase prices for consumers, risking an overall drop in turnover, as the sector attempts to absorb rising employment costs.” Stephen Montgomery, spokesman for the Scottish Hospitality Group, said: “Today’s announcements are a blow to businesses across the country, but it is particularly concerning for the hospitality industry. It is estimated that it the Chancellors plans will add 10% to operating costs and it could certainly cost jobs. SHG cannot see how this budget addresses the government’s ambitions of a  dynamic, modern and growing economy.” Conor Sheridan, chief executive of AI-powered restaurant management system Nory, said: “Restaurants now face rising pressures from a minimum wage increase of over 6%. This is three times the current inflation rate, and although a positive for individuals, will massively impact labour costs, which already account for a significant portion of business expenses for many venues. As we move forward, it’s essential for the government to prioritise measures that help to alleviate these pressures.”