Punitive tax rises are stretching London’s hospitality sector to its limit, business owners have claimed.
By Kumail Jaffer, Local Democracy Reporter
Credit: Facundo Arrizabalaga/MyLondon
Punitive tax rises are stretching London’s hospitality sector to its limit, business owners have claimed.
Last April Chancellor Rachel Reeves faced heavy criticism for choosing to top up the public finances with an extra tax on businesses.
The policy, intended to raise £25billion from companies nationwide, saw National Insurance (NI) rates increase from 13.8 per cent to 15 per cent, while the payment threshold fell from £9,100 to £5,000.
The impact on small London businesses has been stark, with new research from Novuna Business Finance suggesting 79 per cent of owners are losing sleep over challenges facing their firms, with thousands of jobs cut in the capital.
Mayor of London Sir Sadiq Khan and his deputies have struggled to defend the impact of the policy, instead claiming it was necessary to balance the books.
One year on, businesses across London are feeling the squeeze.
‘We’ve been left out to dry’
Nick Crispini opened the Flour and Grape almost a decade ago in Bermondsey, with the establishment now highly accailmed for its array of homemade pasta, gelato and various wines.
Last year’s tax rise, however, has pushed his business to the brink.
“It’s just obviously eaten into my profits, that’s obviously the headline – but there has been lots of rising costs,” he told the Local Democracy Reporting Service (LDRS).
“Because it all feeds down onto the consumer at the end of the day, there’s been a downturn in business as well, so it’s almost a double whammy.
“To encourage growth, you shouldn’t just impact the business [side]. Sometimes I think they just think businesses are these money pits but actually they’re the ones that employ people who then pay their taxes etc – it’s basic economics.
“I know other vendors feel like we’ve just been left out to dry.”
Credit: Pardeep Singh
Pardeep Singh, the owner of Eatalia Cafe near London Bridge, wasn’t in when we visited on a sunny day in mid-March, but, like many business owners, he was keen to tell what he feels is an underreported story.
Asked about the impact of the NI rise, he said: “It’s been another heavy blow at a time when we’re already stretched to the limit. Our turnover has actually gone down since last year because people just don’t have the spare cash they used to—they’re definitely spending less when they come in.
“At the same time, our fixed costs are exploding.
“Our suppliers are raising their prices constantly, our business rates are up, and even the local council is squeezing us.
“For example, our pavement licensing used to be £100 a year, and now it’s jumped to £350. When you add the new NI threshold dropping to £5,000, it feels like we’re being punished just for keeping people employed. If we try to increase our prices by even 50p to cover these costs, customers understandably complain because they’re feeling the pinch too. We’re caught in the middle.
“I would absolutely urge the Mayor to speak up for us. Small businesses like Eatalia are what make London’s streets special, but we can’t keep absorbing these hits. Between the NI rise, the council hikes, and the drop in consumer spending, the math just isn’t working for independent hospitality.
“The Mayor needs to tell the Chancellor that if they want London to stay vibrant, they have to stop making it so expensive to run a business and employ local people. A reversal of the NI rise would be a massive help, but honestly, if they could also lower VAT for hospitality even by a little bit, it would be brilliant. It’s the only way we can keep our prices fair for the neighborhood while still keeping our doors open.”
Nico Desaio is another passionate advocate for lower taxes on businesses who feels City Hall is not doing enough to back London’s entrepeneurs.
“I am getting killed by the taxes, they are killing me as an independent business,” he said.
“It’s heavily impacted our business – it’s extra expenses where we really don’t need it.
“It’s the biggest mistake that this government has made.
“We only opened in September 2024 – it’s an extremely difficult situation for businesses in London.
“Our margins are getting really small – soon, people in London will have to pay £9 for a pint, which isn’t realistic.
“Raising these taxes is a major mistake – it will kill the economy. I know 20 independent venues which have shut down in the last three months alone. It’s a sad situation.
“The Mayor should stand up for us – firstly on business rates. He needs to focus on saving independent businesses, but he seems to be focused on making London a 20mph zone instead. London’s economy is collapsing. I don’t think the Mayor doesn’t realise this – he’s very smart and knows the economy, but he won’t stand up against his own party.”
Pressure in City Hall
Sir Sadiq Khan’s Deputy Mayor for Business Howard Dawber was questioned by two Conservative Assembly Members last month over whether he backed Chancellor Rachel Reeves’s decision, but refused to give an answer.
He said: “Businesses have every right to identify everything that has a detrimental impact on their ability to employ people. It’s down to those businesses to make those representatives.
“Rachel did the right thing. I’m not going to criticise the government for the decisions they’ve taken. She had a really difficult job to do to raise [revenue]. I know that the Chancellor inherited a dysfunctional economy after 14 years of [Conservative] government.”
Earlier today, Conservative Assembly Member Neil Garratt told the LDRS: “London still ranks among the very top world cities for international visitors, but I’m really worried Labour take that for granted.
“They’ve hit the hospitality trade with more Business Rates, a jobs tax, and higher staff costs which all gets passed on to the customer.
“There’s only so much people will pay for a drink, a meal, or a show. And now they’re hitting hotels and B&Bs with a holiday tax. We are reaching the point where it could all go pop.
“The Mayor needs to tell his Labour friends in government to reverse the damage, but are they even listening?”
At the same Assembly-wide session at City Hall, Allen Simpson, Chief Executive of UKHospitality, told Members the levy change was “socially regressive and cost us jobs”.
He added that the impact of the NI rise in London was “socially as well as economically damaging”, saying: “Hospitality is the single largest employer of school leavers, it’s the single-largest employer of people who work part-time around their other responsibilities.”
In January, the Mayor of London also refused to criticise the NI increase, telling Assembly Members: “None of us like paying more taxes or NI. None of us like seeing a reduction in public services.
“However, if the government does not get on top of the deficit, do not be surprised if the markets mean we are paying more in interest, which means, rather than either providing public services or tax cuts, we are having money leaving our country by going to interest rate repayments. I do not want that to happen.”
A spokesperson for the Mayor added said he is proud to be London’s “most pro-business Mayor ever”.
A government spokesperson told the LDRS: “We have the right economic plan – we’re reforming business rates to back high streets, with a £4.3bn support package to limit bills rises, alongside capping Corporation Tax at 25%, cutting red tape and taking action on the cost of living to boost the sector.”
