‘Starmer scared our customers to death’: the pubs and restaurants bracing for the budget

On October 2, Simon Wood, a data manager turned MasterChef winner, closed the doors to his Manchester city-centre restaurant after seven years. “No one’s safe in this climate,” says Wood. “Tom Brown’s restaurant [Michelin-starred Cornerstone] has gone, Le Gavroche has gone, there’s Monica Galetti [a judge on MasterChef], Michael O’Hare [in Leeds], Glynn Purnell [in Birmingham],” he added, reeling off a who’s who of Michelin-starred chefs who have closed their restaurants in recent months citing the changing market and costs.
He opened his self-titled restaurant in 2017 off the back of his success on MasterChef 2015 when he impressed the judges with dishes such as octopus and chorizo and pigeon and blackberry, but like thousands of restaurants in recent years, it has succumbed to the pressures of declining footfall, high taxes and soaring energy, labour and food costs.
Now the hospitality industry is warning that Wednesday’s budget could be “catastrophic” for many more small businesses like Wood’s. They warn that the planned increase in employers’ national insurance, on top of already-costly increases to the living wage could push businesses over the edge. There are also concerns tax and business rates reliefs that were granted to them during Covid may not be extended. While restaurants received a reprieve during the pandemic with grants, loans, tax cuts and schemes such as Eat Out to Help Out, many are now saddled with debt from rent arrears and repayments on the government’s Bounce Back and business interruption schemes.
Since 2019, the number of UK restaurants has fallen from 25,628 to 20,170, a 21 per cent drop, according to CGA and AlixPartners’ Hospitality Market Monitor.
Wood, whose son Cameron, 25, was also a chef at his restaurant, warned: “We will lose lots of others, too.
“The government, for all intents and purposes, thinks it’s doing the right thing, but they’re getting the workers on-side by promising the earth and then the SMEs like myself have to deliver it and it’s just not possible.”
It emerged yesterday that Reeves is set to increase employers’ NI by up to 2 percentage points. However, plans for a new NI levied on employers’ pension contributions have been kiboshed.
Mark Derry, chairman of the Heartwood Collection of pubs and the Brasserie Blanc restaurant chain, said: “Well, it’s a relief, obviously, about the pensions, but there are a whole lot more issues around employees’ terms and pay that is extremely unsettling.”
Reeves is expected to confirm more wage rises in the budget. The statutory minimum pay for those aged 21 and over — known as the National Living Wage — rose to £11.44 in April, but the government-appointed Low Pay Commission has suggested it should rise again to about £12.10 from April 2025. The minimum wage for 18 to 20-year-olds will also rise under government plans to eventually bring them in line with the National Living Wage.
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In July, the commission was told by the government that it must consider the real cost of living when considering wage rises. Businesses say this has added pressure at a time when changes have been made to zero-hour contracts, which unions said were being used to trap workers in low-paid and insecure work.
The Employment Rights Bill will give workers the right to a contract reflecting the number of hours they regularly work and require businesses to give “reasonable notice” or compensation if shifts are changed or cancelled.
Wood said: “It will kill SMEs because hospitality doesn’t work like that. If I give someone 30 hours and then I have one customer that night, what do I do?”
Restaurants and pubs suggested that customers were already eating out less in anticipation of a raft of tax rises on Wednesday that could affect them.
It has been suggested that Labour ministers could lower stamp duty tax bands and possibly reduce the amount of tax-free cash savers are allowed to withdraw from their pension pots once they retire.
“It is no coincidence that our numbers have been down since Sir Keir Starmer spouted about how bad the forthcoming budget was going to be. A lot of our customers are scared to death,” said Richard Johns, chef/owner of The Plough Inn, in Wombleton, North Yorkshire.
The prime minister said in August that the budget would be “painful” after he said the Conservatives had left a £22 billion black hole in the public finances. He has pledged not to raise taxes on “working people”, but when pushed to define this, he said last week that it included people who are “usually paid in a sort of monthly cheque” rather than those earning money through assets and shares or who had the ability to “write a cheque to get out of difficulties”.
Restaurateurs say they are as concerned about what might be omitted from the budget as what might be included.
More than 13,000 people have signed a petition urging the government to reduce the rate of VAT on food and drink from 20 per cent to 10 per cent, which would help them compete with supermarkets where VAT is not applied on produce.
UK Hospitality, the industry body, is also calling for an extension to business rates relief. Businesses were given a 75 per cent discount in 2020 to ease the impact of Covid-19 on the hospitality sector. However, this is due to end in March 2025, leaving businesses facing a fourfold increase.
Wood, for example, paid £23,000-a-year business rates but they were due to rise to £93,000 in the spring when the relief ended. He was also paying £360,000 a year in wages and £144,000 a year in rent.
Russell Nathan, senior partner at auditor HW Fisher, said it made financial sense for the government to give restaurants more support. Hospitality is the third-largest employer in the UK with 3.5 million people. According to UK Hospitality, it generated £54 billion in tax receipts in 2022.
“The cost to HMRC in lost taxes when a restaurant fails is massive. We need a taskforce to look into what is causing these failures and how the government can help,” he said.
Mark Fuller, who owns Karma Sanctum Soho hotel in London, and runs its Wild Heart restaurant with Michelin-star Chef Garry Hollihead, says restaurants have been forced to push up prices due to uncapped energy bills and soaring food inflation, which has put off customers during the cost of living crisis.
“You go to Paris and Barcelona and it is a dining out culture, but those restaurants are often very reasonably priced,” he said. “Here, you are paying £1.50 for a fig, wholesale.
“We need the government to give us the tools to offer food at a better rate. You cannot do that if the business rates go up, the rent goes up, the VAT remains the same.
“If the budget does not act on some of these things, they are going to destroy themselves because the restaurants employ a lot of people.”
Fuller said restaurants were still dealing with staff shortages, which he blamed on Brexit. “The government needs to let us bring in people from abroad — there are not enough British staff available. I had a chef apply for a job who wanted £50,000 a year and his past experience was KFC. Restaurants are having to pay through the nose for mediocre.”
There are signs that hospitality is bouncing back. CGA recently reported the first quarter-on-quarter rise in net hospitality openings in two years. Between March and June this year, there was the equivalent of five net openings a day of restaurants, bars and pubs, however, casual dining chains are leading the way, rather than restaurants.
Wood, who is calling for a minister for hospitality, said: “The government, and the ones before them, don’t care when a restaurant fails because there’s always another person who will fill that gap and say ‘it’s my lifelong dream to own a wine bar, or a restaurant’.
“They use their life savings or an inheritance to open one, then they fall by the wayside and another comes along. And on it goes.”