UK’s rising business costs wipe growth off the menu

Sarah Young and James Davey, Reuters

Businesses in Britain's hospitality sector say new taxes are limiting their capacity to invest, compounding a traditional weakness of the economy and undermining the government's pledges to revive growth. Maurice Abboudi owns five Japanese restaurants in London. He told Reuters he had shelved plans for a new site and other investments as any profit he once made is being swallowed up.

Business rates — a property tax on commercial premises — are due to rise from April and will increase by as much as 115% by 2028/29 for some companies. "It's all about ⁠survival now rather than growth," Abboudi said, adding that his K10 group made a "very small loss" last year. "All we're doing is saving money, trying to become more efficient to pay our taxes." Prime Minister Keir Starmer's Labour government won power in 2024 vowing to grow Britain's economy, having courted businesses big and small for years. But it has introduced billions in new taxes to address public debt and fund services, including increased employment taxes. A higher minimum wage has also added to business costs.

"I honestly cannot think of one single growth policy that they've done for a small business," Abboudi told Reuters.

Britain's economy and real incomes have grown slowly since the global financial crisis, while Brexit and COVID hit already weak productivity and investment trends compared to peers. The pain is acute for some High Street retailers and local pubs, restaurants and hotels. Supermarket giant Tesco and Premier Inn owner Whitbread are among those who have highlighted the cost of business rates.

According to OECD data, Britain consistently ranks as having one of the highest property tax burdens among developed nations.

While the government often talks about easing regulation, business owners report the opposite, pointing to employment rights legislation, above-inflation minimum wage hikes and new packaging rules. "It's completely counterintuitive to say that you want the economy to grow but then to put hurdles in front of people," said Alex Reilley, executive chair of Loungers, which runs over 300 cafe-bars and restaurants and employs over 10,000 people.

Some angry company owners say the business rates reform falls far short of the sweeping overhaul Labour promised in its election manifesto.

Trade group UKHospitality has said 1,000 restaurants, 600 hotels and 500 pubs could close this year as a result of the changes, with pubs facing a 76% average hike over the next three years as pandemic-related reliefs are removed.

Finance minister Rachel Reeves said last week she is working on a support package for pubs, and suggested this could be extended to other hospitality businesses. But she said any further changes to business taxation would need to be done in a "balanced way".

Restaurant visits in Britain are still 21% below pre-pandemic levels, according to data from consumer behaviour company Circana, while those in Germany, Spain, Italy and France have recovered more.

Abboudi said he faces an additional 50,000 pounds of business rates this year, equivalent to a 40% rise, on top of a 150,000 pound increase in 2024 from higher wages and payroll taxes.

The higher minimum wage, which is due to rise 4.1% from this April after a 6.7% rise in 2025, prompted Abboudi to invest in screens for customers to order food at two sites, allowing him to cut staff numbers from 52 to 35.

Some family-owned companies are meanwhile setting aside cash to cover a change in inheritance tax (IHT) rules that mean firms will have to pay the levy when passed to the next generation.

Wernick Group chairman David Wernick said he expects to cut investment by up to 50% over the medium-term, blaming the IHT changes. His family's company is Britain's largest independent maker and hirer of portable and modular accommodation and employs over 1,000 people.

Most family business owners are driven by a desire to pass something onto the next generation, Wernick said, adding that Reeves' changes had "sucked the lifeblood ... out of all of those ambitions."

Edward Iliffe, CEO of family-owned Yattendon Group, which spans marinas, newspapers, property, landed estates and a brewery and employs 500 people, said it was delaying investment until it has set aside enough cash to cover its future IHT bill. Surinder Arora, whose Arora Group operates 20 hotels in Britain and employs 3,000 people, said in total his rates bill will rise 71% to over 29 million pounds. "I just hope that this government will look at this and say we need to revisit and we need to see, how can we be competitive," he said.