The UK’s hospitality sector, a vital component of the national economy, is confronting significant financial challenges due to recent policy changes and escalating operational costs. Effective from 6 April 2025, the government has lowered the threshold for employer National Insurance Contributions (NICs) from £9,100 to £5,000. This adjustment brings an additional 774,000 hospitality workers into the NIC bracket, imposing an estimated £1 billion in extra costs on the industry.
Concerns Over Growth and Employment
Kate Nicholls, CEO of UKHospitality, has expressed concerns over the potential repercussions, stating that the policy could hinder growth and lead to job losses. She suggests implementing a lower NIC rate for part-time, lower-paid workers to mitigate the impact.
The sector is already grappling with additional financial burdens, including a £2.4 billion increase in costs due to rising wages and other expenses. Notably, J D Wetherspoon, a prominent pub chain employing over 42,000 staff, anticipates an annual labour cost surge of approximately £60 million. Despite reporting a 5% increase in like-for-like sales over a 25-week period ending 19 January 2025, the company acknowledges the looming challenges posed by escalating taxes and labour costs.
Wave of Closures Raises Alarm
The cumulative effect of these financial pressures has led to a concerning trend of closures within the industry. In 2024, the number of pubs in England and Wales fell below 39,000 for the first time, with over 400 establishments shutting their doors. This decline is attributed to rising operational costs and decreased consumer spending.
Marcus Jones, Managing Director of Capcon Ltd, comments on the gravity of the situation:
“The hospitality industry is facing an unprecedented financial strain. The additional NIC costs, coupled with existing economic pressures, could lead to widespread closures and significant job losses. It’s imperative for businesses to reassess their financial strategies and for the government to consider measures that support this vital sector.”
Economic Ripple Effect
The challenges facing hospitality businesses extend beyond the industry itself, affecting local economies, supply chains, and employment levels. Andy Pear, Partner at Moorfields Advisory, the restructuring, refinancing and recovery experts, highlights these broader implications:
“The ripple effect of closures in the hospitality sector is far-reaching. Local suppliers, landlords, and communities all depend on hospitality businesses for economic stability. A decline in this sector could have severe consequences for the UK’s economy as a whole.”
Advice for Hospitality Businesses: Act Early
Given these mounting pressures, Moorfields Advisory is urging businesses to seek professional financial guidance as early as possible. Andy Pear stresses the importance of proactive financial management:
“Early intervention is key. The sooner businesses reach out for advice, the better their chances of implementing effective turnaround strategies. Waiting too long can limit options, and in some cases, make recovery impossible.”
To help hospitality businesses navigate these challenges, Moorfields Advisory recommends the following strategies:
- Conduct a Comprehensive Financial Review
Regularly assess your financial performance, analysing both short and long term cash flow under varying scenarios. With upcoming reductions in business rates relief impacting profitability, it’s important to evaluate your financial position. Frequent reviews can highlight areas to optimise and identify financial strain before it escalates.
- Improve Operational Efficiency
Investing in technology-driven solutions like self-service kiosks, mobile ordering apps or automation tools regarding stock, can reduce the reliance on labour and reduce wastage, enhance efficiency and profitability over time.
- Adopt Flexible Staffing Strategies
Increased costs and enhanced employment rights in a transitionary workforce will lead to making do with “not the best staff”. Align labour costs with demand by offering flexible work arrangements or zero hour contracts reducing unnecessary overheads while maintaining service levels. The key is to understand your workforce’s motives to get the best from them,
- Leverage Tax Reliefs and Incentives
Take advantage of government grants, tax reliefs and subsides especially those regarding reducing waste, employee training and technology adoption. These can offset rising operational costs.
- Catering to All Beverage Preferences
The demand for no- and low-alcohol alternatives is set to experience significant growth, becoming the “new normal” for those under 30. Ensure your offering aligns with this evolving trend to stay competitive.
- Engage with Key Stakeholders
Open communication with creditors, landlords, and suppliers, proactively negotiating payment terms or exploring what discounts can be offered. Easing cashflow and securing breathing room.
Government Support Needed
Industry leaders continue to push for targeted government support to alleviate the financial strain on hospitality businesses. Proposals include:
- Revisiting the NIC threshold reduction
- Extending business rates relief
- Introducing a lower NIC rate for part-time workers
While the Treasury has defended its policies, stating that half of UK businesses will see no change or a reduction in NICs, hospitality leaders argue that the cumulative financial strain is too severe for many businesses to withstand without additional support.
These measures, therefore, could help prevent further closures and job losses, ensuring the hospitality sector continues to play a key role in the UK’s economic recovery.
How Capcon and Moorfields Advisory Can Help
Given the challenging landscape, Capcon and Moorfields Advisory are working together to offer expert guidance to help hospitality businesses mitigate risks and secure their financial future.
- Capcon provides risk management, financial oversight, and business intelligence solutions to help businesses optimise operations and protect profitability.
- Moorfields Advisory, specialists in restructuring, refinancing, and recovery, supports businesses with financial strategy planning, debt restructuring, and turnaround solutions.
If your business is facing financial difficulties, early intervention is crucial. Contact Capcon or Moorfields Advisory to discuss strategies that can help you stabilise operations and safeguard your business.
Strengthening the Future of Hospitality
Despite these challenges, the hospitality sector remains one of the most important industries in the UK, directly employing 3.5 million people and contributing £93 billion annually to the economy. Ensuring its stability and resilience is not only an economic necessity but also essential for preserving local communities and livelihoods.
By taking proactive financial steps and seeking expert guidance, hospitality businesses can weather the current financial storm and position themselves for long-term success.
For Expert Advice and Support:
Contact Capcon: T. 01372 237 050 | E. enquiries@capcon.co.uk
Contact Moorfields Advisory: T: 0207 186 1144 | E. info@moorfieldscr.com
We’re here to help you protect your business and plan for a sustainable future.
Sources
The Guardian – Hospitality firms ‘to incur £1bn costs from employer NICs on 774,000 more workers’
The Guardian – Number of pubs in England and Wales falls below 39,000 for first time
This is Money – Wetherspoon’s flags £60m of extra labour costs under Budget plans
The Living Wage Foundation – The living wage in hospitality: A toolkit for hospitality employers
