The hospitality, retail and wider service sectors are at the heart of the UK’s entrepreneurial landscape, and among the industries most affected by changes to taxes, labour costs, regulation and consumer confidence. Following the Autumn Budget 2025, we spoke with Lord Philip Hammond, former Chancellor of the Exchequer, to understand what the announcements mean for operators, investors and owners across these sectors.
Labour-intensive industries face sharper cost pressures
The most significant Budget measures for hospitality and retail were the rise in the National Living Wage (NLW) and the changes to Business Rates. For businesses built on large workforces at entry-levels of pay, NLW represents a meaningful increase in their cost base.
Lord Hammond highlighted that many hospitality and retail businesses are struggling to absorb continued increases in wage costs without improving productivity or adapting their operating models. With margins already tight for much of the sector, a higher wage floor makes efficiency and smarter workforce planning even more important.
What NLW increase means for owners and operators:
- Workforce planning must happen earlier and more intentionally.
- Productivity per employee becomes a key determinant of profitability.
- Menu engineering, pricing reviews and service model optimisation will be essential.
- Teams may need to be redesigned around peak periods rather than uniform staffing levels.
For investors, this creates a clearer distinction between strong and weak operators. Businesses with data-led forecasting, strong customer retention and disciplined cost control will continue to attract capital.
Business rates reform offers stability, but not relief for scaling firms
While the Budget introduced a permanently lower multiplier for firms occupying smaller properties in the retail, leisure and hospitality sectors, this was more than offset by the withdrawal of temporary reliefs. The hit to the sector is compounded by the new rating list which has seen substantial increases to rateable values.
As Lord Hammond pointed out, the lack of similar relief for larger retail, hospitality and leisure premises reinforces a long-term trend to focusing reliefs on smaller operators, rather than encouraging large-scale businesses to drive expansion.
Implications for operators:
- Larger sites will see significant increases.
- Growth planning must assume relatively flat support in this area.
- Negotiating favourable lease structures and turnover-based arrangements may become more important.
Technology and automation: not a luxury, but a necessity
The rise in labour costs intensifies the need for automation, both digital and operational. While we’re unlikely to see robots taking over front-of-house roles any time soon, Lord Hammond noted that many industries will move quickly towards technology-led solutions to ease cost pressures.
Hospitality and retail will not be exempt. Operators can use digital tools and AI to improve forecasting, reduce wastage, optimise rota planning and streamline processes.
Practical steps SMEs should consider:
- introducing AI-driven scheduling
- using data tools to manage inventory and demand patterns
- digital ordering to reduce friction in service
- automating some of back-office processes, like payroll and compliance
These investments tend to pay back quickly during inflationary cycles.
Consumer demand: more certainty, but confidence still soft
Lord Hammond noted that many households had been cautious in recent months, holding back on spending while they waited for policy direction. With the Budget now delivered, some of that uncertainty has eased, to be replaced by generally negative sentiment about the outlook for growth and for future tax increases. Overall, sentiment has softened, meaning a material rebound in discretionary spending is unlikely in the near term, even if the environment feels a little more predictable.
For operators, this means:
- focusing on value-led experiences that encourage customers to return even in tighter spending conditions
- strengthening loyalty and retention strategies, particularly among frequent or high-value customers
- maintaining consistency and service quality, prioritising operational excellence before pursuing expansion
For investors: resilience is the new differentiator
Operators who succeed in the next 12–18 months will typically be those who:
- manage costs intelligently
- leverage technology
- maintain strong cashflow discipline
- create experiences that justify spend even under pressure
These are the businesses that will stand out to lenders and equity investors, and will be best placed for accelerated growth when demand strengthens.
Here at OakNorth, we work closely with operators, owners and investors across hospitality, retail and service-led businesses by providing flexible lending and day-to-day business banking, tailored to real trading conditions. We’ve seen that businesses which stay disciplined, embrace efficiency and make smart investments in tougher moments often emerge as category leaders.
This article reflects the views shared in our recent conversation with Lord Philip Hammond. The content is provided for general information only and does not constitute and should not be relied upon as financial, tax or investment advice.
