The Budget arrives at a time when many businesses in the retail, hospitality and leisure sectors are still balancing cost pressures, changing consumer habits and a cautious economic outlook.
The mood pre-Budget was suitably subdued. The political commentators were largely unanimous: this was never going to be a groundbreaking budget, thanks, in part to the economic and political constraints facing the Chancellor. Many of the changes announced by John Healey had already been heavily trialled in the press, particularly the planned increase in the National Living Wage, which was announced early-on in the Chancellor’s speech. The rise was confirmed at 3.9% starting 1 April 2027.
Given the labour-intensive nature of the retail and leisure sector, this will be a significant consideration for operators already managing tight margins. For many, the question will be: do the numbers stack up?
This question appears to have been anticipated by the Chancellor and so it was pleasing to see a commitment to reducing “the cost of doing business” and providing greater certainty for businesses planning future investment.
Business rates
The most significant announcement for many businesses will be the package of business rates reforms and reliefs announced.
The Government has increased the thresholds for Small Business Rate Relief, which it says will mean thousands more retail, hospitality and leisure businesses will qualify for full relief. The rateable value threshold for 100% relief for qualifying retail, hospitality and leisure properties in England will increase from £12,000 to £18,000 (full relief), with tapered relief continuing to provide support for occupiers of properties with a rateable value of up to £21,000.
From April 2027, business rates relief for qualifying pubs, social clubs and live music venues in England will increase by 20 percentage points, from 15% to 35%.
The Government has committed to freezing business rates for retail, hospitality and leisure properties “in real terms” for two years. In practice, this means that business rates will still rise, but not more than the rate of inflation. For businesses operating from larger and more expensive premises, who miss out on the measures above, this will be welcome news.
For many in the sector, business rates are one of the largest outgoings on the ledger, aside from rent. Coupled with the ban on upward only rent reviews announced last year, the Chancellor’s changes to business rates will improve business sentiment and hopefully encourage operators to look again at properties that were previously considered unviable.
High street focus
In addition to business rates, the Chancellor also paid specific attention to businesses with physical trading locations.
As discussed in our recent article, Physical retail isn’t dead – it’s evolving: the rise of the retail park, online retail growth has plateaued in recent times in favour of physical retail. This trend is something which the Government appears keen to encourage, with the Chancellor stating an intention to publish a new High Streets Strategy. Additional funding towards tackling derelict buildings and supporting community assets, including pubs and sports clubs was also announced.
These measures will be funded by reforms to tax collection on online businesses. With effect from October 2027, online marketplaces will be responsible for collecting VAT on sales by UK-registered businesses, and any other UK business with a minimum annual sales threshold per platform of £90k. This won’t apply to non-business sales, second hand goods or business-to-business sales.
Retailers and leisure operators with significant high street exposure will no doubt be pleased to hear the Government’s support for bricks-and-mortar businesses and address concerns about competitive imbalances between physical and online stores.
Consumer behaviour
Of course, operational costs are only one side of the argument. Businesses will not be reassured by these measures if consumer behaviour does not follow. The success of these measures is still heavily reliant on household budgets. With the Chancellor unable to offer any meaningful personal tax cuts for individuals, the concern will be that individuals simply don’t have the money to spend to support the sector.
The Budget did contain some measures intended to support household finances, including energy bill support and a continued freeze on fuel duty. Certain households will also feel the benefit of the rise in National Minimum Wage and National Living Wage.
While none of these measures is likely to trigger a significant increase in discretionary spending on its own, collectively they may provide some support for consumer confidence and spending power.
Conclusion
While the Budget is unlikely to transform the high street overnight, it does contain something many businesses have been calling for: certainty. This should be treated with cautious optimism by operators considering expansion, refurbishment projects or new site acquisitions over the coming years.
Perhaps the most encouraging aspect of the Budget is not in the measures themselves but in the wider theme that the Government recognises the continuing importance of physical businesses to local communities and the wider economy. Whilst challenges very much remain, the message is clear: the Government wants the retail, hospitality and leisure sectors not simply to survive, but to invest, grow and play a central role in the UK’s economic future.
Clarke Willmott’s retail and leisure team advises businesses across the sector on property, investment and operational issues. If you would like to discuss how the Budget’s business rates reforms, high street initiatives or wider economic measures could affect your business, please get in touch with our specialist retail and leisure lawyers.
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