The UK hospitality sector has spent the last few years rebuilding after the pandemic. Just as stability starts to return, the sector is now facing a new structural pressure: changes to business rates. Announced in the November Budget, these reforms are designed to modernise the system and remove temporary Covid-era relief. For pubs, restaurants and hotels, the result is simple. Costs rise again, and this time they are fixed costs tied directly to the property. For many operators, that is the hardest cost of all to absorb.
Business rates are essentially a tax on non‑residential property such as shops, pubs, hotels, offices, warehouses. The money goes to local councils (not directly to central government), who use it to fund local services like street cleaning, bin collection, local infrastructure, and some public services. The government sets the rules, the multipliers, and collects some of it centrally, but councils rely on it heavily.
What is changing ?
Hospitality businesses have benefited from temporary Retail, Hospitality and Leisure relief that reduced business rates bills by up to 40 percent, capped at £110,000 per business. This support ends in March 2026.
From April 2026, a new system applies. There will be permanently lower multipliers for properties with a rateable value under £500,000 and a higher multiplier for larger properties. At the same time, rateable values are being reassessed. Pubs are particularly exposed because their valuations are partly linked to turnover. Many are seeing increases of around 30 percent, with some much higher.
The net effect is that a large number of hospitality businesses will see their rates bills rise significantly even with the new structure…
What this looks like in real life
Across the sector the numbers are already clear. Hotels are facing increases of tens of thousands per year. Some modelling shows cumulative increases of over £200,000 across a three year period.
Independent pubs are hit hard because their valuations are linked to trade performance. A venue that has worked hard to recover post pandemic can see that recovery reflected straight back as a higher tax bill.
Small premises that previously sat comfortably within relief thresholds can suddenly jump into a much higher liability bracket after revaluation.
These are not small increases that can be absorbed quietly. They directly affect staffing levels, opening hours and long term viability.
Partial support from government
Following pressure from the sector, pubs and live music venues are due to receive a 15 percent discount on business rates from April 2026, alongside a short term freeze. That support is welcome but it’s limited. Restaurants, cafés, hotels and night time venues do not receive the same level of protection. The wider sector remains exposed.
Interestingly enough, the Palace of Westminster and associated parliamentary buildings don’t pay business rates. They are exempt as Crown property. Essentially, most government buildings, including courts, ministries, and Parliament, are outside the business rates system.
So while your local pub’s rates can skyrocket, Parliament itself is not contributing through rates. This is standard: public sector and Crown properties are generally exempt. So while your local pub’s rates can skyrocket, Parliament itself is not contributing through rates. This is standard: public sector and Crown properties are generally exempt.
Why hospitality feels this more than other sectors
Hospitality carries a unique risk profile when property taxes rise. It has high fixed costs. Rent, energy and staffing already take a large share of revenue. It is location dependent. A pub or restaurant cannot move to a cheaper warehouse on the edge of town or risk losing trade.
Margins are tight. Many operators run on single digit profit margins, so any fixed cost increase has an immediate effect.
Business rates therefore land directly on the one part of the business that cannot flex.
What businesses can actually do about it
There is no single workaround, but there are practical steps that operators are already using to reduce the impact.
1. Challenge the rateable value
Rateable values can be reviewed and appealed. Many operators accept valuations without checking them. That is often where money is lost.
Review the basis of valuation carefully, particularly for pubs where turnover assumptions are used. Use the Check, Challenge, Appeal process and, where needed, bring in a specialist rating surveyor. Even a modest reduction in rateable value can produce meaningful savings over time.
2. Claim every available relief
Relief does not end with the Covid scheme. Operators should actively check eligibility for small business rate relief, hardship relief, empty property relief and any local discretionary schemes run by councils (good luck with that one if you’re living in an area where the councils are struggling other than when they have to foot the bill for their Christmas parties).
A large number of businesses do not claim everything they are entitled to, so it’s worth asking around.
3. Make the building work harder
If the tax is tied to the property, the property needs to generate more value.
Operators are already doing this by:
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introducing daytime offers such as coffee, brunch or remote working packages
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hosting private events and functions
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adding retail elements such as bottled products or merchandise
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running delivery or takeaway kitchens alongside dine in service
The aim is simple. Increase revenue per square foot.
4. Rethink unused space
Some venues are reducing liability by changing how space is used. This can include subletting unused rooms, converting areas into co working space, or creating flexible event areas that generate additional income. Smarter use of space can reduce the effective burden of rates.
5. Work with others locally
High streets work best when they work together. Local collaborations such as shared marketing, town centre events and loyalty schemes can increase footfall for everyone and improve overall resilience.
6. Stay involved in industry pressure
Trade bodies have already influenced changes to the current policy direction. Continued engagement matters. The system is still evolving and further adjustment is possible if pressure remains consistent and evidence based.
The bigger picture
The policy aim is to rebalance the tax system between physical premises and online operators. In principle that is widely supported. The difficulty is timing. These changes arrive while energy costs remain high, wages continue to rise and consumer spending is still uneven. That combination creates a squeeze that many independent operators will struggle to absorb.
What happens next ?
Business rates are no longer a background admin line. They are now a central strategic issue. And for a sector built on community, experience and place, that matters.
The next phase for UK hospitality will be defined by how well businesses adapt to fixed property costs that are unlikely to fall. Operators who stay stable will be those who understand their cost base in detail, actively manage their rateable value, and make every square foot of their premises work as hard as possible.
Living in a small village, this is going to impact our little cafe. Owners are currently left with either raising prices or trying to cut more costs. It’s sad really…
