October Week 4: U.K. budget introduces changes impacting insurance, taxes, and minimum wage for hotels and hospitality.

On October 30, 2024, U.K. Chancellor Rachel Reeves, the first woman to present the national budget, outlined Labour’s fiscal approach since winning power in July. Tasked with filling an alleged ￡22 billion gap left by the previous administration, Reeves announced changes to taxes, business rates, and minimum wages that will impact the U.K. hospitality sector, especially hotels, restaurants, and other High Street businesses.

Tax and Insurance Shifts for Businesses

The Labour government’s 2024 budget aims to raise ￡40 billion through revised tax policies and inject ￡70 billion into infrastructure, hoping to stimulate construction by relaxing regulations. Business rates have been a longstanding grievance for the hospitality sector, with industry advocates like UKHospitality noting that the current system penalises businesses with prime locations and large facilities, such as hotels. Starting from the 2026 financial year, the government plans to lower overall business rates while increasing the tax multiplier on high-value properties and online businesses.

To assist the hospitality industry specifically, Reeves introduced a 40% relief on business rates up to ￡110,000 per business, replacing the previous relief rate of 75%. UKHospitality, an advocacy body for the industry, had previously issued a warning that without reforms, the hotel sector could face quadrupling tax burdens. CEO Kate Nicholls argued that the current tax structure results in an overpayment of ￡2 billion by the sector, discouraging small High Street businesses.

National Insurance Contributions and Capital Gains Tax

Among other changes, the 2024 budget includes an increase in employer National Insurance contributions from 13.8% to 15%, effective April 2025. In tandem, the threshold for employer contributions will be reduced from ￡9,100 to ￡5,000. However, to aid smaller businesses, Reeves increased the employee allowance from ￡5,000 to ￡10,500, benefiting about 865,000 employees who will now be exempt from National Insurance contributions.

For capital gains tax, Labour reversed a previous Conservative reduction, increasing the lower rate from 10% to 18% and the higher rate from 18% to 24%. While this change was not mentioned in Labour's election campaign, it is expected to increase government revenues as part of the broader tax restructuring.

Minimum Wage Hikes to Affect Hospitality Businesses

A key budget highlight for the hotel and hospitality sectors is the 6.7% increase in the national minimum wage for workers aged 21 and over, which will rise to ￡12.21 per hour. This change, effective in April, affects a workforce with a high concentration of entry-level roles. Increases for younger workers are even more pronounced: those aged 18 to 20 will see a 16.27% increase to ￡10 per hour, and apprentices will experience an 18% rise to ￡7.55.

These wage adjustments come as the Labour government aims to address wage stagnation, although they pose an additional challenge for the hospitality industry, which depends heavily on entry-level roles.

Economic Stability and Inflation Projections

In her address, Reeves reiterated Labour’s commitment to “stabilise the economy” after years of what she described as “financial mismanagement” by previous administrations. She referenced projections from the Office of Budget Responsibility (OBR), which anticipates inflation will continue but decrease steadily: 2% in 2025, 1.8% in 2026, 1.5% through 2027 and 2028, and 1.6% by 2029. The OBR has also projected that the government could achieve debt-free status by 2027, an ambitious target given current fiscal demands.

Additional Provisions and Reliefs

Reeves’ budget includes further measures that could benefit or challenge the hospitality industry. She announced a reduction in draft beer taxes by 1.1% and the abolition of non-domicile tax status, which has allowed individuals living in the U.K. for a substantial part of the year to avoid certain tax liabilities.

The Bank of England's upcoming decision on interest rates on November 7 will be closely monitored, as changes could impact business borrowing costs and economic growth, adding another layer of complexity to the financial environment for hotels and hospitality businesses.

Future Outlook

Overall, while the U.K. budget provides reliefs aimed at bolstering the hospitality sector, the combination of increased National Insurance contributions, higher minimum wages, and capital gains taxes presents financial pressures. The sector will need to adapt to these changes, balancing labor costs with the support provided by reduced business rates and relief on property tax burdens. The forthcoming years will reveal whether these adjustments foster the stability and economic recovery that Labour’s budget aims to achieve.