Budget 2026: UKHospitality says rates relief is 'a first step' but VAT fight goes on
UKHospitality has described the 2026 Autumn Budget as "a first step towards fairness" for the sector, after Chancellor John Healey announced business rates relief for hospitality and leisure businesses in England but stopped short of a VAT cut.
Delivering his first Budget on Wednesday, October 28, 2026, the chancellor raised the small business rates relief threshold for retail, hospitality and leisure businesses from £12,000 to £18,000, which the government says will take 70,000 more businesses out of business rates altogether.
Allen Simpson, chief executive of UKHospitality, said: "This is the first Budget in several years to deliver any positive news for hospitality at all, and it shows that forceful, sustained sectoral campaigning works.
"We must carry on going to win the VAT cut we so badly need."
What did the 2026 Budget announce for hospitality?
The headline measure for hospitality was business rates. As well as the higher small business rates relief threshold, retail, hospitality and leisure businesses that do not qualify will have their rates frozen in real terms for two years, so none faces an above-inflation rise in that time.
The chancellor told the Commons he was "taking them out of paying business rates altogether", referring to the businesses brought under the new threshold. The business rates transitional relief supplement will also be extended by two years.
The government had already announced a 20 per cent business rates cut for around 32,000 pubs, social clubs and live music venues in England from April 2027, although restaurants and hotels were left out.
Allen said: "The change to hospitality business rates across England is important. For hospitality and leisure businesses across England, rates will either be frozen in real terms, reduced or cut to zero for two years from April. That is meaningful progress."
No VAT cut for hospitality
The sector's biggest ask, a cut in VAT on hospitality from 20 per cent to 10 per cent, did not feature.
The #VATsTheProblem petition, fronted by Tom Kerridge, gathered more than 400,000 signatures before it was delivered to Downing Street on October 14.
The chancellor did not mention hospitality VAT in his speech, instead saying the Budget would give businesses "big and small" some "breathing space".
Allen said: "Hospitality pays 82p in business taxes for every pound it makes, the highest in the economy and double that of a bank.
"We were clear that this Budget had to reduce that burden. There will be no solution to the NEETs crisis without doing it."
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Hospitality is the UK's largest employer of young people, and UKHospitality has repeatedly linked the sector's tax burden to the almost one million young people not in education, employment or training.
Ahead of the Budget, Michelin-starred chef Tommy Banks told The Staff Canteen that "you can't tax jobs", and called for a VAT cut and incentives for employers to take on young people.
How will the minimum wage rise affect hospitality?
The National Living Wage for workers aged 21 and over will rise by 3.9 per cent, from £12.71 to £13.20 an hour, from April 2027. The rate for 18 to 20-year-olds will rise by the same amount, from £10.85 to £11.27.
The increase was lower than some had feared, with rumours ahead of the Budget suggesting a rise of as much as 5.5 per cent.
The British Institute of Innkeeping was less positive, warning that the rise "will instead have the opposite effect, forcing employers to reduce hours, shifts and inevitably, jobs."
Elsewhere, alcohol duty will rise in line with RPI inflation from February 1, 2027, softened for smaller producers by £10 million a year in relief for more than 2,000 small brewers and cider makers. No changes to employer National Insurance were announced.
"A hill to climb"
Despite welcoming the rates changes, UKHospitality said the Budget left much of the sector's tax burden untouched.
Allen said: "But we have a hill to climb: today was a first step towards fairness, and we have to be clear that there is a lot more to do.
"While we are encouraged that we have a Government that is now listening, we urge them to go further, faster, to address the unequal tax burden on the sector, and to help us unlock investment, deliver on their commitment to create jobs for young people, and growth for this industry and the economy."
UKHospitality represents more than 130,000 venues, from pubs, bars and restaurants to hotels, indoor leisure and contract catering. The sector contributes £96 billion a year to the economy and employs more than 3.6 million people.
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