Pubs and restaurants are warning of closures and a tough Christmas ahead if Rachel Reeves’s budget this week raises taxes and ends a Covid-era relief on business rates.
Reeves is expected to reveal a tax-raising budget on Wednesday, to pay for improved public services, with Labour sources indicating the government is intending to raise taxes and cut spending by a combined £40bn. Businesses across the economy are bracing for higher taxes, which could dent consumer spending.
However, hospitality businesses are particularly worried because of the scheduled end next spring of the business rates relief, which could mean the tax bills charged on their properties will quadruple. Rates relief was introduced in 2020 for pubs, restaurants, bars and cafes when the government ordered all hospitality to close during the Covid-19 pandemic.
Reeves’s Conservative predecessor, Jeremy Hunt, last extended the business rates relief in November. The relief offers a 75% discount, capped at £110,000, until 1 April.
The British Beer and Pub Association, the British Institute of Innkeeping and UKHospitality issued a joint call on Monday for Reeves to effectively make the relief permanent for hospitality businesses.
The lobby groups said a new survey by NielsenIQ showed that 54% of the companies surveyed said they would reduce their employment levels, and 51% said they would cancel planned investment, if full business rates were reintroduced.
More than a quarter of the businesses surveyed said they would close at least one site if their rates bills returned to pre-pandemic levels.
In a joint statement, the lobby groups said: “Many cash-strapped pubs, brewers, bars, restaurants and cafes, to name a few, would simply be unable to survive their rates bills quadrupling.
“Not only does inaction risk half of businesses having to cut jobs and cancel investment, but it also means a quarter would have to consider closing at least one site, which might be their entire business.”
A higher business rates bill could come with consumer spending still struggling. UK consumer confidence fell this month, according to the long-running GfK consumer confidence survey. Some analysts have warned of a “vibecession” that could mean spending falls even as the economy holds up relatively well.
Tax-raising measures on consumers are expected to include a “stealth” freeze on income tax thresholds that would raise revenues while leaving headline rates the same. Some economists also believe that employers could limit pay rises in response to widely expected higher employer national insurance contributions.
The accountancy firm RSM UK said 42% of UK consumers will spend less on Christmas this year if tax rises affect incomes in the budget, according to a survey of 2,000 people.
Saxon Moseley, partner and head of leisure and hospitality at RSM UK, said: “Despite real wages increasing, if tax changes impact consumer confidence then the hospitality industry may well see a spending hit over the all-important festive period.”
