This article is by David Dillon – CEO of URocked

When the Chancellor presents her budget on Thursday, the hospitality sector will be watching anxiously. The biggest concern for operators is whether the government will choose to address the industry’s crippling cost base or add further obligations at a time when margins remain historically tight.

To put this in context, it’s helpful to look at key areas already driving up sector-specific costs. In the 2025/26 fiscal year, business-rates multipliers are set at 55.5p per pound of rateable value for standard properties and 49.9p for small businesses. At present, the government’s Retail, Hospitality and Leisure (RHL) relief continues to provide 40% off the business-rates bill, capped at £110,000 per business.

In London, however, most commercial sites are also subject to the Greater London Authority (GLA) Business Rate Supplement of 2p in the pound on properties with a rateable value (RV) above £75,000, as a contribution to the Crossrail levy. As a result, a mid-sized restaurant with an RV of £100,000 will typically pay around £34,500 per year after all reliefs are applied.

On top of property costs, operating pressures continue to mount, with food and beverage costs coming in at 28–35% of turnover (on average), while labour costs, including wages, National Insurance and pensions, represent a further 30–35% for full-service venues.

The list goes on. Occupancy (rent, rates and service charges) consumes 8–12%, utilities another 5–7%, and other overheads (insurance, marketing, maintenance and technology) add 1–3%. Taken together, most hospitality businesses now spend 85–90% of revenue on operations, leaving profit margins as slim as 5–10%.

Business rates reform and revaluation

So, what could be on the agenda on Thursday? Hints from the Treasury have been few and far between, but what we do know is that, from April 2026, a new system of business-rate multipliers will be introduced, providing two reduced rates for retail, hospitality and leisure properties with an RV below £500,000, and a higher rate for large commercial sites.

While the change is designed to help smaller venues, analysts have warned that a 2026 rateable-value revaluation, based on 2024 rental data, could raise bills for larger London sites.

Labour and employment costs

The Office for Budget Responsibility has projected there will be continued increases in the National Minimum Wage and employer National Insurance contributions, which will push up staffing costs. There is also speculation that adjustments to holiday-pay rules and sick-pay thresholds may also be made, adding further pressure to payrolls.

VAT and indirect taxes

While the sector has lobbied extensively for a reduction in VAT on hospitality services to boost profitability, the Treasury is actually more likely to adjust VAT thresholds or narrow exemptions in an attempt to increase revenue. As with many previous Budgets, Thursday’s edition may also include increases in alcohol duties and energy-efficiency levies linked to net-zero goals.

If this turns out to be the case, such changes could raise energy and supply-chain costs by 5–10%. There have also been suggestions of a proposed tourist tax, which may make domestic tourism more expensive.

Regulation and compliance

Elsewhere, new DEFRA initiatives, including the Hospitality Waste & Resource Strategy 2025, are expected to introduce stricter waste-reporting and recycling requirements, while updated licensing and environmental-impact reporting could add administrative costs.

There could, of course, also be some pleasant surprises, but the general outlook among industry professionals is far from optimistic. For a sector already under enormous financial pressure, the decisions announced this week could quite literally be make-or-break for the many hospitality businesses on the edge.