After UK’s pubs U-turn, hotels and cafes warn of tax ‘nightmare’

WHEN his food chain The Salad Project proved a hit with health-conscious customers following the pandemic, Florian de Chezelles had ambitious plans to conquer London.

That was until Rachel Reeves’ Budget. Soaring business rates, a commercial property tax, that were confirmed in the Chancellor of the Exchequer’s November event, have pushed the 31-year-old’s startup to slow its expansion in the UK capital and prioritise growth abroad instead.

“If you are a new business starting now and you’ve got to try and survive in the new business rate climate, there’s no way you’re growing at the pace at which we’ve grown. No way,” said De Chezelles, whose company has 12 London sites.

At Davos on Wednesday (Jan 21), Reeves suggested that pubs would get a package of support imminently to help cushion the blow from business rates. But the bulk of Britain’s hospitality sector, including hotels, holiday parks, restaurants and nightclubs, looks set to be left out. Now they’re up in arms.

“It’s hard to understand how Rachel could think that it’s okay to help the pubs out, but not the rest of the high street – simply because they’ve got a louder voice,” said De Chezelles, whose company previously benefited from pandemic-linked rates relief. 

The government is helping hospitality businesses with a £4.3 billion (S$7.5 billion) support package to limit bill increases, a spokesperson said. This is alongside capping corporation tax at 25 per cent, cutting red tape and tackling the cost of living, they added.

Companies in the sector, which employs 3.5 million people, don’t have long before the higher business rates come into effect in April. The taxes are based on the value of a premise multiplied by a specific rate, known as the multiplier. While Reeves announced a lower multiplier for more than 750,000 firms at the Budget, a revaluation of properties and the end of pandemic-era assistance will mean higher bills for a typical hospitality business.

“Like a nightmare”

The sector was already feeling the heat. The higher levies come on top of an increase in the minimum wage, national insurance contributions – a payroll tax – rental and energy costs, and a tourism tax for hotels. Physical stores are shutting, while growth, investment and hiring are on ice across the industry.  

“We used to hire people and provide jobs and energy and positivity,” Julian Metcalfe, co-founder of Pret A Manger and Itsu, said in an interview. “Business rates have gone up and up and up and up. You have to pay them – you have no choice – and they come like a nightmare.”

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John Vincent, owner of fast-food chain Leon, blamed the tax burden last month for a decision to cut staff and close some of its restaurants just two months after he bought it back from supermarket chain Asda. He’s hoping the government announces support not only for pubs but also for the whole sector; otherwise, he may close more stores. Hospitality is at an “extreme tipping point, created by the government”, Vincent said in an interview.

According to the UK Hospitality lobby group, the whole industry has been hit with £7 billion in extra costs from the Labour government’s two Budgets, predominantly from tax hikes. Almost 200,000 jobs have been shed since the July 2024 general election, it says – and its CEO Allen Simpson estimates another 100,000 could be cut if business rate hikes come into force as planned. 

While British pubs will receive support, they’re not even the worst hit by the property tax rises. Hotels will face an average 115 per cent increase in business rates over the next three years, compared to 76 per cent for pubs, according to the trade body. Without a rethink, more than 2,000 hospitality firms could close this year – or six per day – the group warns. Almost half of those are predicted to be restaurants. 

More than 130 hotels and holiday parks including Premier Inn owner Whitbread wrote to the chancellor this month to urge her not to raise business rates, calling the measure the “most significant challenge” to staying afloat. 

“What I’m baffled by is why a pub is different to our business,” said Jon Hendry Pickup, CEO of holiday parks group Butlin’s. “Why are we treated differently?”

Butlin’s has slowed hiring, site refurbishments and investment into new resorts. The company wants to expand into the north-west of England, for example, but growing in the current climate is “very, very difficult”. 

It’s the same story for smaller, independent hoteliers. “In 45 years, this is the toughest I’ve ever known,” said Shaun Whitehouse, co-owner of Lanes Hotel in Somerset, who has worked in hospitality since leaving school. “As most of my peers are, we are just living day-to-day just trying to keep the doors open.” In response to the challenges, he’s cut staff, moved others to part-time roles and raised prices. 

Before being voted into government, Labour pledged to reform the business rates system and level the playing field with online firms. The tax constitutes one of the Treasury’s biggest earners, with the government due to collect £37 billion in revenue in the next financial year from the levy, with receipts set to rise to £42 billion by 2030. 

Opposition parties are applying pressure. “A U-turn which excludes the wider sector would be criminal,” said Andrew Griffith, the Conservative Party’s shadow business secretary.

Armed with fresh capital from investors including Deliveroo founder Will Shu, The Salad Project is plotting its international expansion, starting in Paris. It once considered opening as many as 40 UK stores.

“There’s no way we will find 30 to 40 locations that stack up financially in this current climate,” said De Chezelles. BLOOMBERG