Hospitality Industry Leaders Sound Alarm on Business Closures and Job Losses Due to Budget Measures
A letter addressed to Chancellor Rachel Reeves outlined the potential negative consequences of increasing employment costs on the sector. In the letter, hospitality sector leaders warned that changes to the employer National Insurance Contribution (NIC) threshold could result in business closures and job losses within a year if action is not taken.
The letter, supported by 209 hospitality businesses, urged Reeves to address the concerns raised. It highlighted that the current rate businesses pay for NIC on employees’ earnings above £9,100 a year is set to increase to 15 percent from April next year, with the threshold reduced to £5,000. Additionally, the employment allowance, which helps firms reduce their NI liability, will be increased from £5,000 to £10,500.
These changes are expected to impact part-time and lower-earning employees in high street venues, as well as the leisure and catering sectors, according to the letter. CEO of UKHospitality, Kate Nicholls, emphasized that without intervention, growth plans for many businesses could be jeopardized, potentially leading to closure for smaller venues.
The letter also proposed two key recommendations to mitigate the impact of the announced employer NIC changes. Firstly, the signatories suggested creating a new employer NICs band from £5,000 to £9,100 with a lower rate of 5 percent. Secondly, they recommended exempting lower band taxpayers working fewer than 20 hours per week to support part-time and lower-paid workers.
Recommendations
UKHospitality acknowledged the government’s aim to boost economic growth but emphasized that changes to NIC could have the opposite effect. The policy, as outlined in the letter, places a burden on businesses providing jobs while sparing firms that have used technology to reduce jobs.
In response to the proposed increase in minimum wages next year, UKHospitality estimated that the hospitality sector would face an additional £3.4 billion in costs in April. Concerns were also raised about the impact on contract catering in vital public sector areas such as schools, hospitals, and prisons.
While Reeves defended the policy, suggesting that businesses could absorb the employer NIC increases through reduced profits or efficiency gains, feedback from the sector indicated that businesses would likely cut hours, scale back recruitment, and reduce staff due to the financial strain.
The trade body, supported by key industry leaders, recommended in-year mitigations to address the challenges posed by the employer NIC changes. Suggestions included bringing forward business rates reform to April 2025 or reversing the temporary increase in VAT from 17.5 to 20 percent.
The government’s planned business rates reform is scheduled for April 2026–27, with adjustments aimed at reducing rates for firms with a rateable value under £500,000. The last temporary increase in VAT to 20 percent took place in the 2010 Budget under George Osborne, with no changes announced in the latest Autumn Budget.
