Government policy reforms in the UK are placing fresh financial and operational strains on the hospitality and retail sectors, according to a House of Lords Library briefing published on 19 January 2026.
The report outlines the effects of changes to business taxation, employment costs and regulatory requirements following the government’s 2025 budget, and provides context for a parliamentary debate held on 22 January on these issues.
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Business rates reform and tax changes
At the centre of recent policy impact is the overhaul of business rates – a property-based tax payable by non-domestic premises such as shops, pubs, restaurants and hotels.
In the 2025 budget, the UK government announced a revaluation of rateable values based on 2024 property data, to take effect from April 2026.
While authorities also pledged to introduce lower multipliers for retail, hospitality and leisure properties, the temporary 40 % retail, hospitality and leisure (RHL) business rates relief is being phased out.
Industry groups have warned that these reforms may still lead to higher overall rates bills for many hospitality and retail firms, especially as rateable values rise after the pandemic era.
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By GlobalDataManufacturers of accommodation and food services could end up paying significantly more in business rates over the next few years unless additional support is extended beyond current plans.
Debate in Parliament has reflected sector concern about the cumulative effect of higher property costs and tax burdens.
Opponents on the high street argue these changes come at a time when many businesses are still recovering from the pandemic and grappling with post-Covid inflation in sectors such as hospitality and retail.
Wage increases and employment cost pressures
In addition to property taxes, labour cost increases are highlighted as a key factor affecting sector finances. The government’s 2025 budget raised both the national living wage and multiple tiers of the national minimum wage, taking effect from April 2026.
These increases affect wage bills for hospitality and retail employers and are likely to have wide-ranging implications for staffing budgets across the sector.
The briefing also notes previous increases to employer National Insurance contributions and the lowering of thresholds for social contributions, which have heightened labour costs for businesses.
Combined with ongoing staffing shortages and lower median pay levels in hospitality compared with other industries, these factors contribute to operational challenges.
Industry reaction and parliamentary scrutiny
The House of Lords debate on 22 January 2026 provided a forum for peers to scrutinise how policy changes are affecting retail and hospitality. The debate was informed by the Lords Library background briefing, aiming to assist lawmakers in assessing the broader economic impact.
Government spokespeople reiterated the intent to support high street businesses with targeted measures and reforms, including transitional caps on business rates.
Industry associations representing pubs, hotels, cafés and shops have called for clearer and more comprehensive support measures. These organisations argue that rising taxation and employment costs risk harming investment, reducing staffing capacity and suppressing growth prospects in an already competitive market.
International observers will note that similar debates are taking place across other economies as governments balance tax reform with post-pandemic sector resilience.
