Budget 2026 series

Budget 2026 29 October 2026

Markets · Pubs, retail and business rates

UK Pubs Receive Budget Relief, But Higher Wages Could Swallow the Savings

The Chancellor has announced additional business rates support for pubs, shops and hospitality venues. The winners will not necessarily be those receiving the biggest percentage reductions, but those able to convert lower costs into higher operating profits.

Mickey Perry29 October 2026Equity & Markets Insight

A difficult combination

In recent times UK hospitality companies have endured a difficult combination of rising input costs, including labour and energy, weaker consumer spending and pressure from business rates.

There has been ongoing, sustained pressure on drinking habits, which has reduced expenditure. For pub operators, weak consumer spending is not helping the situation.

Margins have continued to come under pressure. Even where sales have continued to grow, operating margins have remained vulnerable.

This Budget did provide some assistance, although it is mixed.

What the relief is worth

From April 2027, qualifying pubs, social clubs and live music venues in England will receive 35% business rates relief. This compares with the 15% that was previously offered, introduced in April 2026.

That does represent a meaningful reduction in a large fixed cost for operators. The additional 20 percentage points are the part that is new.

Consider an illustrative pub with an annual business rates bill of £100,000 before relief. At the previous 15% relief it would pay £85,000. Under the new 35% relief it would pay £65,000. The improvement is £20,000 a year, assuming the underlying rates liability is otherwise unchanged.

For a business with a large estate of eligible properties, such savings accumulate. The calculation must be made against the rates liability of each qualifying property, though, not against total company revenue.

The government estimates the additional pub and venue relief will cost approximately £160 million in 2027–28.

This does represent a meaningful reduction in a large fixed cost for operators. However, there is more complexity here.

The wage bill moves the other way

The National Living Wage will increase from £12.71 to £13.21 per hour in April 2027. That equates to a 3.9% increase in the minimum wage.

For an employee working 35 hours a week throughout the year, the 50p hourly increase represents approximately £910 of additional annual gross pay before employer on-costs.

A pub operator employing hundreds or thousands of people at or close to the minimum wage could therefore see a substantial increase in payroll costs.

Not every employee will receive the statutory increase, and actual wages often exceed the minimum. Pay differentials create further pressure, though, when employers raise wages for more experienced staff to maintain the gaps between job grades.

JD Wetherspoon is the obvious company to examine because of its extensive UK pub estate. A reduction in occupancy-related costs could help protect its operating margins, particularly where fixed costs have been rising faster than selling prices. Mitchells & Butlers, which operates a broad collection of pub and restaurant brands, faces similar considerations, and Marston's and Fuller's are also worth assessing.

Where the money goes: labour and business rates against total costs

Latest full financial year, £ million. Employee costs and business rates shown as segments of total operating costs before separately disclosed items; Marston's and Fuller's rates are their last disclosed figures (FY2024)

Employee costsBusiness ratesOther operating costs* last disclosed, FY2024

Each of these businesses has already put a number on the previous round of wage and National Insurance increases. Mitchells & Butlers reported a £100 million cost headwind in its 2025 financial year, driven primarily by labour, and expects around £130 million in 2026. Fuller's said the April 2025 changes added £8 million of annualised cost. Wetherspoon's wage bill rose by £46 million in its latest year, and its business rates by £9 million. Marston's cited around £10 million of inflationary and regulatory cost headwinds.

Marston's employee costs are a smaller share of its total because most of its pubs now run under a partnership model, where the staff are employed by the partner rather than the company.

What about other shops and restaurants?

The government is also increasing the threshold for Small Business Rate Relief from a rateable value of £12,000 to £18,000, for qualifying retail, hospitality and leisure properties in England.

The tapered relief threshold rises from £15,000 to £21,000.

Around 70,000 additional high street businesses are expected to pay no business rates as a result.

There will also be a two-year real-terms freeze for qualifying properties, which means increases in rates bills are generally capped by CPI inflation. It does not mean bills will remain unchanged in cash terms.

For much of the industry listed on the stock market, such as Next, Marks & Spencer, Tesco and Sainsbury's, these smaller-property thresholds are unlikely to produce any real benefit to profitability.

Online marketplaces

From October 2027, online marketplaces will become responsible for collecting VAT on qualifying sales by UK businesses within their platforms.

The measure targets sellers generating at least £90,000 of annual sales per marketplace, alongside other qualifying VAT-registered sellers. Personal sales, second-hand goods and business-to-business transactions are excluded.

The Treasury estimates additional revenue of £165 million in 2027–28, rising to £320 million in 2028–29.

As far as UK marketplace companies are concerned, I don't see this having much of an impact. It provides a more competitive and fairer playing field, and it may narrow the pricing advantage enjoyed by some non-compliant sellers. But I don't think it is really going to adjust anything much for larger operators, and there is no guarantee that compliant high street retailers gain market share from it.

The investment case

In some ways, not enough has changed. The minimum wage increase was perhaps more anticipated than not, and it was not that dramatic.

Where we are seeing vacancy levels falling, as they have been for three years, alongside a rising minimum wage requirement, how much does this make sense economically for the country?

Likewise, with the increased ability of operators to implement AI and automation within their systems, I wonder how much further they can take the minimum wage upwards.

I wonder how much further they can take the minimum wage upwards.

UK job vacancies

Total vacancies, thousands, seasonally adjusted, rolling three-month average, October to December 2023 to July to September 2026

Vacancies, all industries (ONS)

Vacancies in accommodation and food services

Thousands, seasonally adjusted, rolling three-month average, October to December 2023 to July to September 2026

Vacancies, accommodation and food service activities (ONS)

The National Living Wage since it was introduced

Hourly rate from 1 April each year, £, with the rate announced for April 2027

Rate in forceAnnounced for April 2027

I see the business rates measures as a positive development for hospitality, particularly pubs. But I would avoid placing too much emphasis on the headline percentage reduction without examining each company's wage bill and property costs.

For investors, the most useful comparison is likely to be the expected rates saving as a percentage of operating profit, followed by the additional annual payroll expense.

Companies with stronger sales volumes, better labour productivity and the ability to maintain prices should be better positioned to retain the benefit.

The Budget provides an opportunity for operating margins to improve. It is not a guarantee that they will.