Reeves accused of ‘smoke and mirrors’ over hospitality tax rises

Industry leaders say the Chancellor’s Budget masks steep increases in business rates and other costs. Despite claims of a “new golden era,” operators warn closures could accelerate across pubs, hotels and restaurants.

Chancellor Rachel Reeves has been accused of using “smoke and mirrors” in her Budget speech to deceive the hospitality industry about the true extent of tax rises she is imposing on the sector.

She told Parliament she was heralding in a “new golden era for hospitality” with “permanently lower tax rates for over 750,000 retail, hospitality and leisure properties”.

She said her new regime would deliver “the lowest tax rates since 1991” for high street pubs, shops and restaurants.

Industry bodies warn of steep rises

But industry bodies have calculated that once all her measures are taken into account thousands of pubs, hotels, shops and restaurants face crippling tax rises next year with the average pub paying an extra £12,900 in business rates alone over the next three years.

That excludes the extra costs of the increased minimum wage and the inflation-linked increases in alcohol duties from next April.

Revaluation and end of Covid relief fuel concerns

While Reeves was saying she was creating a new tiered system for business rates, the Valuation Office quietly published revised rental valuations based on 2024 data, which assess properties at a much higher value than during Covid.

In addition, Reeves omitted to mention that the 40% discount on business rates set up to help the sector during the coronavirus crisis would not be renewed in April.

Reeves claimed that the new permanent tax levels will be lower than they were before Covid, but with the revaluation they will be significantly higher than they are today.

Fears of widespread closures

The industry now accuses the Chancellor of levying “stealth taxes” that will force a new wave of closures over and above the 2,000 pubs that have ceased trading over the past five years.

Kate Nicholls, the chair of UKHospitality, has forecast that up to 30,000 hospitality businesses in England are at risk of closure after the Budget.

The trade group said the average pub’s business rates would increase by 15% next year, adding £1,400 to the typical tax bill. In 2027 it would be £4,500 higher and by 2028 it would be an additional £7,000, an increase of more than 65%.

Those figures are calculated after allowing for Reeves package of “transitional relief” that will phase in the increases. Without this, the typical pub would have faced a 66% in rates next year, according to analysis by accountants Ryan.

The increase in rates for hotels is even higher, typically £205,200 extra over the next three years.

Industry leaders criticise budget

Emma McClarkin, the chief executive of the British Beer and Pub Association, said: “We were promised real rates reform but we got a budget of smoke and mirrors. This is really dark for pubs.”

Nicholls expressed “disappointment” that Reeves only announced a 5p in the pound discount on business rates for small retail, hospitality, and leisure businesses, which she said was “a lot smaller than was promised”.

Last year the government gave itself powers to implement a 20p drop in preparation for the removal of the remaining Covid business rates relief.

“This is the final nail in the coffin for some [small high street businesses], because it is on top of national insurance, national living wage, alcohol duties, packaging taxes, all the other taxes that government has imposed on us, as well as a threatened tourism tax, it is the cumulative burden,” Nicholls told Times Radio.

Treasury defends support package

The Treasury said: “We’re protecting pubs, restaurants and cafés with the budget’s £4.3 billion support package — capping bill rises so a typical independent pub will pay around £4,800 less next year than they otherwise would have.

“This comes on top of cutting licensing costs to help more venues offer pavement drinks and al fresco dining, maintaining our cut to alcohol duty on draught pints and capping corporation tax.”

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