£3.4bn cost hike for sector needs rethink

In the Budget last month (October), Chancellor Rachel Reeves revealed employers’ national insurance contributions will rise​ from 13.8% to 15% while the secondary threshold is set to be reduced.

She said: "We will increase the rate of employer's NI contributions increased by 1.2 percentage points to 15% from April 2025 and we will reduce secondary threshold the level at which employers start paying national insurance on each employee's salary from £9,100 a year to £5,000."

"This will raise £25bn per year by the end of the forecast period. I know this is a difficult choice, I do not take this decision lightly. We are asking businesses to contribute more and I know there will be impacts of this measure felt beyond businesses too."

Trade body UKHospitality (UKH) estimated the sector will be hit with £3.4bn worth of costs from April next year and previously warned of small business closures within a year, businesses to reconsider investment plans, jobs to be drastically cut and hours to be reduced.

Lacklustre figures

UKH chief executive Kate Nicholls said: “These lacklustre growth figures make it clear the UK economy is still in a very fragile place.

“How the Government approaches the economy and consumer confidence going forward in both its policy and its language will matter enormously.

“Its policy to inflict £3.4bn in costs on hospitality businesses in April is already having a negative impact on decision-making on investment and jobs, which will no doubt stifle economic growth once again.

“Hospitality has proven time and again that it can be an engine for growth and was forecast to grow 6% year on year.

“That potential is still there, if the Government rethinks its changes to employer NICs and takes a high street-first approach to growth.”

Unprecedented damage

Nicholls suggested measures the Government could take to mitigate the impact of the employment cost hikes.

She said: “Hospitality is disproportionately hit by these changes, as a significant employer of part-time staff and we’d urge the Government to either create a new employer NICs band for lower earners or implement and exception for lower ban taxpayers working fewer than 20 hours per week.

“Either of those measures would soften the blow for businesses and target support for part-time and lower-paid workers.”

Last week, Nicholls and UKH board members wrote the Chancellor Rachel Reeves, highlighting the ‘unprecedented damage’ the rise in employment costs​ will inflict on the sector.