Pub owner Philip Thorley sees little choice but to raise prices next week when a major tax hike hits British businesses. For him and many others, it's the only way to manage the added burden
— even if it’s bad news for the Bank of England, which hopes to ease interest rates to support the struggling economy.
Thorley, who operates 18 hospitality venues in Broadstairs, says rising costs have already left the sector bruised. “We’re not a sponge,” he said. “At some point, we’ve got to say enough’s enough.”
Starting April 6, UK employers will face a £25 billion increase in social security contributions — a move announced by Chancellor Rachel Reeves in her first budget, which also included the largest tax overhaul in 30 years. Reeves defended the plan as necessary to fund public services and modernize the economy.
The change will hit hospitality businesses hard. Many part-time workers who previously earned below the threshold for employer contributions will now qualify, as the cutoff drops from £9,100 to £5,000 and contribution rates rise.
At Thorley’s Cramptons bar, just 4 of 30 non-kitchen staff currently exceed the threshold — but nearly all will from next week. Thorley, who employs around 400 people, expects to raise drink prices again soon, on top of a 5% hike following supplier increases.
The British Beer & Pub Association predicts the cost of a pint could rise by 21p, pushing it over £5.
Other pressures are piling on too: the minimum wage just jumped nearly 7%, and pandemic-era tax relief for hospitality is winding down.
Hiring, wages Llkely to slow
The UK’s “tax wedge” — the gap between what employers pay and what workers take home — has long been lower than in many European countries. But Reeves’ new budget narrows that gap, and businesses are responding.
Some, like electronics retailer Currys, are turning to automation. Others are cutting back on hiring. Clevedon Fasteners says the combined impact of higher taxes and wages is like adding two extra employees to its 28-person team. Medical device firm Europlaz is favoring temporary hires over permanent staff and replacing graduate jobs with student placements.
The Bank of England is closely watching. While it has trimmed interest rates three times since August, it’s been cautious compared to the U.S. or eurozone. Economists warn the new taxes could raise inflation by up to 0.5 percentage points — possibly pushing it above 4% later this year.
That’s still far below the 11% peak of 2022 but well above the BoE’s 2% target.
Rob Wood, former BoE economist and now at Pantheon Macroeconomics, warns that the central bank risks underestimating the inflationary effect of Reeves’ tax hikes. “If you had to pick a time to make this change, I wouldn’t have done it now,” he said. Photo by k.ivoutin, Wikimedia commons.