If Rachel Reeves’s budget, released this week, raises taxes on businesses and eliminates a Covid-era tax break for business rates and pubs and restaurants face closures or a difficult Christmas.
Labour sources indicate that Reeves will reveal on Wednesday a budget to increase taxes to pay for better public services. The government intends to cut spending and raise taxes at the same time by a total of £40bn . Businesses are preparing for increased taxes that could affect consumer spending.
The end of business rates relief is a major concern for hospitality businesses, as it could quadruple the amount of tax they pay on their property. In 2020, rates relief was implemented for bars, restaurants, cafes and pubs. This came about when the government ordered that all hospitality businesses close due to the Covid-19 pandemic.
Reeves’s conservative predecessor, Jeremy Hunt , extended the business rates relief last November. The relief is capped at £110,000 and offers a discount of 75%.
The British beer and pub association, the British Institute of Innkeeping and UKHospitality jointly called on Reeves Monday to make the relief for hospitality businesses permanent.
Lobby groups said that a NielsenIQ survey showed 54% of companies would reduce employment and 51% would cancel planned investments if the full business rates are reintroduced.
Over a quarter (25%) of businesses said they would shut down at least one location if rates returned to levels before the pandemic.
The lobby groups stated in a joint press release that many pubs, brewers and bars, as well as restaurants, cafes and other businesses, who are already strapped for cash, would be unable survive a quadrupling of their rates.
“Not only would inaction force half of the businesses to reduce jobs and cancel investments, but a quarter might have to close at least one location, which could be their entire company.”
The consumer spending is still in decline, which could lead to a higher business rates bill. According to GfK’s long-running consumer confidence survey, UK consumer confidence dropped this month. Analysts have warned that a ” vibrcession” could occur, which would mean that spending will fall even though the economy is doing well.
Tax-raising measures for consumers will include a “stealth” freeze on income tax rates, which would increase revenues without changing headline rates. Some economists believe employers may also limit pay increases in response to higher expected employer national insurance contributions.
According to a survey conducted by RSM UK, 42% of UK shoppers will spend less at Christmas this year due to tax increases in the budget.
Saxon Moseley is a partner at RSM UK and the head of leisure and tourism. He said that despite real wages rising, if changes in tax policy impact consumer confidence, the hospitality sector may see a drop in spending during the crucial festive season.
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