Hospitality Faces “Cliff Edge” as Rising Costs Threaten Pubs and Small Businesses

Hospitality Faces “Cliff Edge” as Rising Costs Threaten Pubs and Small Businesses

The landlady of two Weymouth pubs has warned that the British hospitality sector is facing an existential crisis, as rising employment costs, high VAT rates and steep increases in business rates push pubs and small businesses “to the brink of survival”.

Lyn Mackenzie, landlady and director of Your Local Ale House Ltd, which operates The Black Dog and The Tin Cat, says recent changes to employer National Insurance thresholds — combined with rising business rates, wage costs and VAT on hospitality — have created a financial environment many businesses simply cannot withstand.

After more than 40 years in the industry, Mackenzie says she has traditionally avoided expressing political views, believing pubs should remain neutral spaces for everyone. But she now feels compelled to speak out, citing concerns not only for her own businesses but for the future of the sector nationwide.

“This goes far beyond the price of a pint,” she said. “Hospitality now has its back against a wall.”

Part-Time Work Becoming “Financially Unviable”

Around a third of Mackenzie’s 24-strong workforce is employed on part-time contracts of between 10 and 15 hours per week — a model she says is fundamental to hospitality, allowing businesses to respond to fluctuating demand.

However, recent changes to employer National Insurance thresholds mean that once staff work beyond relatively low hour limits, employment costs rise sharply, creating what Mackenzie describes as a “financial cliff edge”.

The result, she warns, is that part-time employment — relied upon by carers, students, people with second jobs, and those supplementing income alongside benefits — is becoming financially unviable for employers.

“The policy outcome appears counterproductive,” she said. “Rather than increasing economic security, it risks reducing employment opportunities and workforce participation.”

Wage Increases Without Employer Support

While Mackenzie supports the principle behind increases to the National Living Wage, she says they are being introduced without meaningful support for employers.

Rising National Insurance costs, combined with VAT charged on food, drink and non-alcoholic sales, are forcing businesses to flatten pay structures, reduce hours, or cut staffing levels in order to remain compliant.

“That undermines morale, retention, and progression within the sector,” she said.

Business Rates Rises of Up to 90%

Business rates represent what Mackenzie describes as the most immediate threat. One of her pubs is facing a 25% increase, while the other faces a 52% rise. Nearby hospitality businesses are reportedly seeing increases of between 71% and 91%.

She says the rises appear arbitrary, lack transparency, and bear little relationship to trading performance or ability to pay.

Across both pubs, Mackenzie estimates an additional £5,000–£10,000 per month is now required simply to cover increased National Insurance, VAT liabilities and business rates.

“There is no realistic source for this income,” she said. “Customers do not have the disposable income to absorb continual price rises.”

Structural Disadvantage Compared to Supermarkets

Mackenzie also highlights what she sees as structural inequities between pubs and large retailers. Hospitality businesses are required to charge VAT on most food and drink sales, while supermarkets can sell alcohol and food at lower margins without the same staffing, licensing or duty-of-care obligations.

Licensed venues are legally required to promote responsible drinking, while supermarkets can sell alcohol at heavily discounted prices without equivalent controls.

“This creates an uneven and unsustainable competitive environment,” she said.

Live Music and Local Economies at Risk

Live entertainment is another major concern. Mackenzie explains that entertainment costs are funded from business profits and are not treated as deductible operating expenses. As margins shrink under the combined pressure of VAT, rates and employment costs, live music is often the first casualty.

In towns such as Weymouth, live music is not only cultural enrichment but a vital economic driver, supporting musicians, venues, accommodation providers and the wider tourism economy.

“If live music disappears, the damage will ripple through the entire local economy.”

Call for Urgent Action

Mackenzie is urging government and local authorities to act quickly, warning that without immediate action the likely outcomes include business closures, job losses, hollowed-out town centres and reduced tax revenues.

Her calls include:

• Meaningful action on business rates, including caps on increases and closer alignment with trading reality

• A review of employer National Insurance thresholds for part-time staff

• Targeted support to help hospitality fund statutory wage increases

• A reduction in VAT on hospitality to reflect the sector’s high labour costs

• Fairer taxation and regulation relative to large retailers

• Formal recognition of live entertainment as an essential economic contributor

“Without urgent action,” she said, “we risk losing not just pubs, but the social and cultural spaces that hold communities together.”

She added:

“Long live the British pub.”