More than two-thirds of hospitality businesses are set to reduce staffing levels due to tax changes coming into effect this April, according to research conducted by leading industry bodies.
A survey of pubs, bars, restaurants, and hotels found that 70% of businesses expect to cut employment levels due to increased costs and reduced rates relief announced in last autumn’s budget. With hospitality being one of the most affected industries during recent economic fluctuations, industry leaders warn that these changes could have a long-lasting impact on businesses of all sizes.
What Are Businesses Saying About the Financial Burden?
The British Beer and Pub Association, the British Institute of Innkeeping, Hospitality Ulster, and UKHospitality conducted a poll revealing that 60% of businesses plan to cancel planned investments in response to these rising expenses. Many businesses that had hoped to expand their premises or invest in staff training are now shifting their priorities to cost-cutting measures in an attempt to survive.
The trade bodies are now urging the government to postpone changes to employer national insurance contributions (NICs) to mitigate the immediate impact on investments and jobs. They argue that a delay would allow the hospitality sector to continue contributing to economic growth, maintaining employment levels and supporting local communities.
What Are the Details of the Tax Changes?
The government announced in October’s budget that, from April, employer NICs will rise to 15%, while the threshold at which contributions are due will decrease from £9,100 to £5,000. Additionally, the national minimum wage is set to increase by 6.7% to £12.21 an hour.
These changes are expected to generate £25 billion annually to support public services, particularly in areas such as healthcare and education. However, critics argue that the short-term economic consequences for small businesses, particularly in the hospitality sector, will outweigh the benefits. Many business owners worry that increasing operational costs will force them to pass the burden onto consumers by raising prices, which could lead to reduced footfall and further financial difficulties.
What Are the Industry Leaders Saying?
“At a time when hospitality has been one of the top contributors to economic growth, the last thing the government should be doing is piling on costs that will impact employment and cut off our ability to grow,” the trade bodies said in a statement.
They warned that failing to delay the NICs threshold change would have significant consequences for communities, employees, and supply chains. The effects of these changes are likely to extend beyond individual businesses, impacting suppliers, distributors, and local economies.
“They have warned about potential lost earnings, lost jobs, reduced trading hours, and, in some cases, business failure,” the statement continued. “This would mean the loss of essential community hubs that would otherwise drive the local economy and create jobs.”
The hospitality industry has long played a vital role in community engagement, providing social spaces that bring people together. The potential closure of many businesses would not only lead to job losses but could also erode the cultural fabric of towns and cities across the country.
How Many Businesses Will Be Affected?
The survey, conducted in January and covering over 8,000 sites, found that almost a third (29%) of businesses plan to reduce trading hours due to the extra costs. Additionally, 25% reported having no cash reserves left, an increase of six percentage points from three months earlier.
A further 15% of businesses indicated they would have to close at least one site to remain operational. This alarming trend highlights the precarious financial situation many hospitality businesses are facing.
Many business owners express concerns that even a slight increase in expenses can tip the balance toward insolvency. The rising costs of rent, energy, and raw materials have already squeezed profit margins, leaving little room for further economic pressure. If the government proceeds with these tax changes, an increasing number of businesses may be forced to shut their doors permanently.
How Are Salaries and Job Vacancies Trending in the UK?
In a separate report, data showed that the average advertised salary in the UK reached nearly £41,000 in January. According to the job site Adzuna, the rise in average wages was driven by significant increases in sectors such as manufacturing, maintenance, and retail.
Annual pay rises were also noted in logistics, customer services, and domestic help and cleaning. However, job vacancies declined further in January, falling to just under 830,000, the lowest figure recorded for that month since 2021. The decrease in job vacancies indicates that while wages may be rising, overall hiring activity is slowing down.
Last week, figures from the Office for National Statistics revealed that pay grew sharply in the final quarter of 2024, while unemployment remained steady, despite earlier warnings that the autumn budget would lead to job losses. However, industry experts argue that the full effects of the tax changes may not yet be reflected in the data. As businesses begin to implement cost-cutting strategies, further reductions in employment levels are likely in the coming months.
What Does This Mean for Employers and Jobseekers?
Andrew Hunter, co-founder of Adzuna, explained, “The rise in average salaries reflects the increasing competition for talent in key sectors, even as overall hiring slows.”
“For jobseekers, this means adapting to a more competitive landscape, while for employers, attracting and retaining talent remains a challenge,” he added.
As hospitality businesses grapple with these financial pressures, many are being forced to make difficult decisions about staffing levels, expansion plans, and pricing strategies. Employees in the sector face uncertainty, with reduced job security and potential wage stagnation despite the increases in the national minimum wage.
Business owners are calling for more government support, including financial relief measures and a reconsideration of the proposed NICs increase. Many believe that a phased approach to implementing tax changes would provide businesses with a better chance of adapting without resorting to job cuts and closures.
What Lies Ahead for the Hospitality Industry?
As the tax changes approach, businesses across the hospitality sector brace for the financial strain, with industry leaders continuing to advocate for a delay to protect jobs and investments. The next few months will be critical in determining the resilience of the industry, with many hoping for last-minute government intervention.
The broader implications of these tax changes could extend beyond the hospitality sector, affecting supply chains, consumer spending patterns, and overall economic stability. Whether the government will heed the calls for a postponement remains to be seen, but one thing is clear: the hospitality industry is at a crossroads, and its future depends on the decisions made in the coming weeks.
Add a Comment