On 26 November 2025, the Chancellor of the Exchequer, Rachel Reeves, delivered her second budget.
In this blog, our Hospitality and Leisure and Retail lawyers explore the impact the budget will have on hospitality, leisure, and retail businesses, which have been facing mounting financial pressures in recent times.
Key Points from the Budget
- Introduction of permanently lower business rates for over 750,000 retail, hospitality and leisure properties from April 2026.
- Update on 27 January 2026: pubs and music venues in England will be given a 15% discount on their business rates bills from April 2026 and will not see increases for 2 years
- Increases in the National Living Wages and the National Minimum Wage: from April 2026, workers aged 21 and over will be paid £12.71 an hour (a rise of 4.1%), workers aged 18 to 20 will be paid £10.85 an hour (a rise of 8.5%) and apprentices and those under 18 will be paid £8 an hour (a rise of 6%).
- National insurance and income tax thresholds frozen for an extra 3 years until 2031.
- National Licensing Policy Framework for the hospitality and leisure sector.
- Mayors in England to be given the power to charge a “tourist tax”.
- UK tax on fizzy drinks is extended to milk-based products (such as pre-packaged milkshakes and coffees) that are high in sugar.
- VAT unchanged.
- The end of the low value import relief which allowed some online retailers to import their goods duty free.
Business Rates
The original announcements on 26 November 2025
From 1 April 2026, there will be a lowering of business rates on retail, hospitality and leisure (RHL) properties, with a 5p drop in multipliers in England for all small and standard-sized properties.
However, in order to fund this tax cut, there will be a higher rate on properties valued at £500,000 or more, which is being raised by 2.8p above the national standard multiplier.
These multipliers will replace the temporary RHL business rate, which is currently set at 40%.
For those businesses who see a large increase in their rates bill, the Chancellor has now announced a package of support worth over £4.3 billion.
This new model is likely to put further financial strain on high street and other businesses that rely on a physical presence.
Whilst the Chancellor has said these measures will support a level playing field in retail because it will target online retailers with large warehouses, in reality, it is supermarkets, wholesalers and discount retailers who will likely bear the brunt of increasing business rates as the vast majority of their property portfolios will exceed the £500,000 rateable value threshold.
Update on 27 January 2026
On 27 January 2026, the Treasury announced that pubs and music venues will be given a 15% discount on their business rates bills from April 2026 and will not see increases for 2 years.
This announcement came after a backlash against November 2025’s Budget which left many facing major increases in their business rates bills and led to more than 1,000 pubs banning Labour MP’s from their premises!
According to the Government, the three-year package would be worth £1,650 for the average pub in the financial year 2026-27 and will cost the Treasury £80m in its first year.
The Government’s announcement has not been well-received by those in the hospitality and leisure and retail sectors.
Both the British Retail Consortium and UKHospitality have called for the support package to be widened in order to support all businesses in the retail, hospitality, and leisure sectors who are facing severe challenges.
Furthermore, there are still calls for the Government to permanently reduce the business rates multiplier for RHL properties.
Wage Increases
The National Living Wage is set to rise by 50p an hour to £12.71 from April 2026, which means an extra £900 per year for a full-time worker.
The minimum wage for 18- to 20-year-olds will rise by 85p an hour to £10.85. Apprentices and those aged 16-17 will see their hourly pay increase by 55p an hour to £8.
The Chancellor has said these wage increases will help those struggling in the ongoing cost-of-living crisis, but both UKHospitality and the British Retail Consortium have warned that these wage increases are likely to be passed onto customers via price increases and will keep inflation higher for longer, as has been noted by the Office for Budget Responsibility.
Furthermore, UKHospitality has said that these wage increases will cost the hospitality industry an extra £1.4 billion and may deter businesses from hiring younger workers.
National Insurance and Income Tax Thresholds Frozen
Personal tax thresholds will be frozen for a further 3 years until April 2031, pulling more people into higher tax brackets.
According to the Office for Budget Responsibility, the freeze in tax thresholds will result in 780,000 people paying income tax for the first time, while 924,000 will be pulled into higher tax rates.
This is likely to negatively impact consumer spending across sectors such as retail, hospitality, and leisure.
New National Licensing Policy Framework
In July 2025, the Government announced plans to overhaul licensing and planning rules to make it easier for new hospitality venues to open.
Dedicated “hospitality zones” will be created, where gaining permission for alfresco dining, street parties, and extended opening hours will be fast-tracked.
It is hoped that the new framework will make it easier to convert empty shops into hospitality venues and protect pubs, clubs and music venues from noise complaints by new developers.
On 26 November 2025, the Government published a new framework for licensing authorities. This framework will be reviewed in 6 months.
Tourist Tax
Ahead of the budget, it was announced that mayors in England will be given the power to impose a charge on visitors staying overnight in hotels, bed and breakfasts, guest houses and holiday lets.
Mayors will be able to decide the level of the charge and how to spend the money in their local areas. The Government has said the funds could be invested in local transport, infrastructure and to support the visitor economy.
This move aims to bring England in line with Scotland and Wales, who are already introducing similar taxes.
UKHospitality has warned that the so-called “tourist tax” will be passed onto consumers and undermine the Government’s aim of reducing the cost of living.
The Fizzy Drinks Tax
The so-called “sugar tax” will be extended to include pre-packaged milk-based drinks such as ready-to-drink coffees, sweetened yoghurt drinks and milkshakes. Drinks made in cafes and restaurants will be exempt.
The tax came into force in 2018 and applies to drinks with at least 5g of sugar per 100ml, although the threshold will now be lowered to 4.5g per 100ml. Manufacturers have until January 2028 to reduce the sugar content in their drinks or face the new charge.
The British Retail Consortium has commented that: "Supermarkets invested huge sums to bring down the sugar content of their own-brand drinks, which is why no own-brand supermarket products currently pay the levy. However, by lowering the sugar threshold and including milk-based drinks, some own-brand products will begin to be captured. This will push up the prices paid by consumers at a time when food inflation is high”.
VAT
There was no cut in the 20% VAT rate, which the hospitality industry had called for to help reduce the burden on hospitality and leisure businesses.
The British Retail Consortium has welcomed the Chancellor’s announcement removing VAT on direct donations, saying that:
“This small tweak by the Chancellor will make a big difference and open the doors for more retailers to donate goods directly to charities and organisations delivering help and aid to families everywhere. It rectifies a quirk of the tax system which previously meant that while donations of goods for onward sale received VAT relief, donations of goods intended to be given to people free of charge incurred a financial penalty”.
Low Value Import Relief
Currently, goods with a value of £135 or less being imported into the UK can claim a customs duty relief.
With increasing numbers of parcels arriving in the UK every day, the Chancellor has announced that by March 2029 at the latest, this customs arrangement that allowed some online retailers to import their goods duty-free will be closed and will ensure all businesses pay equivalent tariffs.
Contact Our Specialist Hospitality and Retail Lawyers
If you would like advice on how these Budget 2025 measures may affect your hospitality or retail business, our specialist lawyers are here to help. Contact our team today for tailored guidance.
0161 941 4000
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Vicky Biggs
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Vicky is a Legal Director in the Insolvency and Restructuring team at Myerson and has been with the firm since 2012. Utilising her commercial litigation experience, Vicky now specialises in contentious insolvency matters, advising insolvency practitioners, directors and individuals in relation to both corporate and personal insolvency issues.
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