Restaurant Owners Brace for Tax Hikes and Wage Increases in the UK

Restaurant and hospitality businesses in the UK are preparing for a challenging year ahead as National Insurance (NI) contributions are set to increase and the minimum wage is poised for another significant rise.

Cost-Cutting Measures

Dominic Chapman, owner of The Crown Burchetts Green and Restaurant Dominic Chapman, is among those facing the financial strain. He has resorted to cutting costs and halting plans for new investments. "It's a particular worry," Chapman says. "We're being very careful to ensure we're lean and not carrying unnecessary personnel."

Job Losses and Reduced Hiring

The anticipated tax hike has led to a decrease in job postings in the hospitality sector. According to the Office for National Statistics (ONS), the number of people employed in accommodation and food services dropped by 58,000 between January 2024 and January 2025.

Similarly, employment in retail, wholesale, and car garages fell by over 36,000 during the same period. This combined loss of over 94,000 jobs underscores the impact of rising labor costs on businesses.

Impact on Minimum Wage Employees

Paul Pavli, a hospitality consultant, notes that the increased cost of employing workers poses significant challenges. "We think it's a 10pc increase in labor costs for an individual," Pavli says. This translates to an additional £2,500 per year for each employee working 40 hours a week.

Inflationary Pressures

The combination of higher NI contributions and minimum wage increases is putting upward pressure on prices. The Institute for Fiscal Studies estimates that employing a full-time worker on the minimum wage will cost employers more than £24,000 per year from April.

This wage growth is also contributing to inflationary pressures in the economy, which the Bank of England (BoE) is closely monitoring.

Economic Outlook

The BoE has indicated that it is unlikely to significantly reduce interest rates until there is stronger evidence that inflation is under control. Chief Economic Adviser to the EY Item Club, Matthew Swannell, says that the MPC is faced with a difficult trade-off between supporting employment and curbing inflation.

Calls for Government Action

Andrea Rasca, who runs a chain of food markets in London, warns that the government's tax raid could lead to widespread closures in the hospitality industry. "Do they want businesses to close and to have only McDonald's and Kentucky Fried Chicken?" Rasca asks.