The UK’s pubs, bars and restaurants have three main costs: energy, labour and business rates. All three of these have risen sharply in the last four years and two of them are set to continue to rise going forward. At the same time, their revenues have been squeezed by the ongoing cost-of-living crisis and fragile consumer confidence caused by concerns over the sluggish economy and a record high tax burden. This is happening against a background of strongly heightened financial frailty.

Surging costs

Energy

Energy costs jumped after the Russian invasion of Ukraine and have yet to return to pre-2022 levels, remaining around 70% higher in 2025 than in 2022. From April 2026, the government is changing the way larger energy users will be charged for their use of the National Grid. Across the whole economy, this energy cost element is projected to double next year and triple by the end of the decade, with multi-site operators such as hotels and restaurant groups among the hardest hit. A UKHospitality member has set out the change and what can be done to limit the damage.

Labour costs

The increase in employers’ National Insurance contributions introduced in April 2025 following the 2024 Autumn Budget was a huge blow to the labour-intensive hospitality sector, effectively adding £2,500 to the cost of employing a full-time member of staff and substantially raising the bill for part-time workers, who are so important in most hospitality companies. April 2025 also brought a significant rise in the minimum wage, which will be followed by another major hike in April 2026.

Business Rates

The latest analysis from UKHospitality shows that the average pub’s Business Rates, even with the reduced multiplier and transitional relief announced in the 2025 Autumn Budget, will increase 15% from April 2026 – an extra £1,400. In 2027/28, an average pub will pay £4,500 more than today, and in 2028/29 £7,000 more. In total, over the three years, an average pub will pay an extra £12,900.

A hotel will be paying an extra £28,900 in Business Rates next year. In 2027/28, they will be £65,000 higher than today and in 2028/29 £111,300 more. In total, over three years, an average hotel’s bill will increase by £205,200.

By 2028/29, the Business Rates for an average pub will have increased by 76% and for an average hotel by 115%.

Financial fragility

Our most recent market report in November 2025 on the finances and challenges of the UK hospitality sector identified a wide range of adverse metrics, indicating that the risk levels in the industry are among the worst across the UK economy.

Key financial metrics

These have all deteriorated significantly in the two years since September 2023, confirming a noticeable reduction in the size of the sector and the level of investment in it:

• Total assets are down 18% from £55.8bn to £45.5bn.
• Total net worth dips by 26% from £16.7bn to £12.4bn.
• Total debt has almost halved from £16.5bn to £8.5bn.

Risk factors

These have increased markedly since September 2023:

• The average financial health rating has fallen from 33 to only 30 out of 100.
• The percentage of hospitality businesses at serious risk of failure has risen from 47% to 54%.
• ‘Zombie’ companies with negative balance sheets now make up 21% of the sector compared to 19%. Their combined balance sheet deficits now total £2.6bn as against £2bn.
• Companies with negative working capital are 28% of the sector, compared to 23%. Their combined negative working capital is now £6.7bn, then it was £4.9bn.
• Over a third of hospitality businesses have total assets of less than £25k.
• Hospitality is the second worst performing sector for insolvencies after construction, accounting for 15% of all failures in England & Wales.

What now for hospitality businesses?

Much will depend on the strength or otherwise of trading over the key festive period, before the sector somehow has to get through the post-Christmas ‘dead zone’ of Q1 2026.  There has been some limited anecdotal media comment on consumer celebratory spending, but no coherent overall picture has yet emerged.

Given the inexorable rise in core costs, none of which seems reversable, prices are likely to have to rise and here too there is sporadic media comment about certain high-profile operators such as Wagamama considering pushing up some selective menu prices. This is a delicate balancing act, trying to pitch increases at levels that won’t deter customers at a time of fragile consumer confidence.

The scope for increasing operational efficiencies any further in 2026 is limited after the measures already taken by many operators following the 2024 Autumn Budget. The biggest concern must be for the legion of small hospitality businesses, which lack the financial resources to withstand any more pressure. Bigger groups may be able to tweak their business models and trim their footprints to eliminate unprofitable units. SMEs don’t have that flexibility.

If you are seeking professional advice for your business, Opus is here to help. We can arrange for you to speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.