Autumn Budget brings relief and higher costs

The Autumn Budget has delivered a mixed outcome for retail and hospitality.

Smaller shops, pubs and restaurants will benefit from changes to business rates. However, many larger businesses face higher costs in the years ahead. VAT and employer National Insurance remain unchanged, despite being major priorities for the sector.

The National Living Wage for workers aged 21 and over will rise by 3.9% from April 2027. The rate for 18 to 20 year olds will increase by the same percentage. The government says the rises will affect around 2.3 million of the lowest-paid workers.

Business rates support has been expanded. The threshold for small business rate relief in retail, hospitality and leisure will increase from £12,000 to £18,000. The government says this will remove around 70,000 businesses from paying business rates altogether. Rates for other retail, hospitality and leisure properties will be frozen in real terms for two years.

Business rates divide opinion

Industry groups largely welcomed the extra support for smaller operators.

Søstrene Grene described the change as a positive step for independent retailers. The British Beer & Pub Association also welcomed lower rates and the higher relief threshold for smaller businesses.

Larger operators were more cautious. The British Retail Consortium said the changes will help many smaller businesses, but pointed out that most retail jobs are in medium-sized and large outlets. It also noted that a real-terms freeze still means bills rise with inflation. Other multi-site hospitality operators argued the new threshold offers little benefit to businesses with larger properties and bigger teams.

Rising employment costs

The wage increase follows several years of rising labour costs.

The British Retail Consortium estimates this Budget will add another £2bn to retailers’ employment costs over two years, on top of previous increases. The British Institute of Innkeeping estimates the wage rise will add around £1,000 in annual costs for each full-time pub employee.

Views were mixed. Schuh’s incoming chief financial officer said the increase is closer to inflation than recent rises and brings both advantages and challenges. Superdry founder Julian Dunkerton said the Budget does not help employers recruit younger workers.

Hospitality and retail measures

Hospitality groups were disappointed that VAT was left unchanged. While some welcomed support on business rates, several organisations said the Budget did not go far enough on VAT or employer National Insurance.

Alcohol duty will rise with inflation from February 2027. The move was criticised by industry bodies. The Budget also includes support for small British brewers and cider makers and gives tied pub tenants in England and Wales the right to stock a guest beer.

For retail, stricter VAT enforcement for online marketplaces will begin from October 2027. Money raised will be used to support lower business rates. Some retail organisations welcomed the move as a step towards fairer competition between online sellers and the high street.

Looking ahead, retail and hospitality groups expect cost pressures to continue. Most of the new measures take effect in 2027, giving employers time to prepare.

What RHR thinks

We believe this Budget offers some extra protection for the smallest operators but does little to ease the pressure on larger retail and hospitality businesses that employ most of the sector’s workforce. With wages and business rates rising again from spring 2027, we expect employers to remain cautious about increasing headcount. They are likely to focus on key hires and favour fewer, stronger recruits rather than expanding teams. We also believe strong store and site leadership will become even more important. Managers who can control labour costs, manage rotas effectively and improve sales productivity will be in demand. As wage gaps narrow, employers that maintain clear pay differences for supervisors and managers are likely to find it easier to attract and retain strong leaders. We expect a steady but competitive market for experienced management talent through 2027, with greater focus on quality and retention.

What this means for hiring. Businesses have until February and April 2027 to plan for higher wage and operating costs, which could affect recruitment budgets across stores, pubs and restaurants. Finance, payroll and HR teams will be involved in preparing for wage increases affecting around 2.3 million lower-paid workers. Ecommerce, marketplace and compliance roles may also see activity ahead of stricter VAT rules for online marketplaces coming into force in October 2027.