The UK Autumn Budget 2025: Challenges, Opportunities and Smart Strategies for Hospitality
The UK hospitality, leisure and independent retail sectors face a year of adjustment as businesses navigate ongoing wage inflation, rising operating costs, and uneven support measures. While targeted business rates relief provides some certainty for smaller operators, maintaining margins will require careful cost management and practical strategies that deliver immediate results. One often overlooked opportunity is modernising payments through Open Banking, supported by payment providers such as Wonderful, to improve efficiency and reduce fees. These challenges and opportunities illustrate the UK Autumn Budget 2025 impact on hospitality, leisure and retail.
Key Measures for Hospitality, Leisure and Retail
The budget, delivered on October 30, 2024, by Chancellor Rachel Reeves, confirms that eligible hospitality, leisure, and retail properties will receive 40% business rate relief for 2025 and 2026, with a cash cap of £110,000 per business. From 2026 onwards, the government will introduce two permanently lower multipliers for properties with a rateable value under £500,000, funded by a higher multiplier applied to larger properties.
These changes provide structural stability for smaller businesses, although the reduction from last year’s 75% relief means some venues may still face higher net rate bills depending on local circumstances and previous reliefs. Operators must also remain aware of subsidy control rules, which limit the total amount of public support a business can receive over a defined period.
Rising Labour Costs
However, the more significant challenge comes from rising labour costs. The Budget accepts the Low Pay Commission recommendations, increasing the National Living Wage to£12.71 for workers aged 21 and above from April 2026. The rate for 18- to 20-year-olds will rise to £10.85. According to UK Hospitality, the sector will face an additional £1.4 billion in wage costs as a result of the uplift.
For businesses where labour already accounts for a large proportion of operating expenses, these increases represent a significant pressure point. Restaurants, hotels, cafés and leisure centres that rely heavily on hourly staff will feel the impact most sharply.
Operating Cost Pressures
Alongside labour inflation, broader operating costs continue to pose challenges for the industry.
Energy prices in several regions remain above historical levels.
Supply chain pressures persist across food, beverage and cleaning categories.
Insurance premiums have increased.
Rents in many urban areas continue to rise.
These factors combine to create a challenging environment where operators must scrutinise every cost centre.
Impact on Smaller Operators
While the budget provides clarity and limited relief, the real test lies in how businesses respond.
Smaller venues such as independent cafés, pubs, boutique hotels and speciality shops will benefit from long-term multiplier certainty. Yet their exposure to wage and input cost increases means the relief is more likely to stabilise finances than to create new investment capacity.
Labour-heavy operations, including hotels with large housekeeping and food service teams, or restaurants with extensive front- and back-of-house staffing requirements, will face even greater cost escalation.
Leisure venues, gyms and entertainment spaces that rely on part-time workers will also experience compressed margins as wage thresholds rise.
Practical Strategies to Manage Costs
Given this context, operators need a focused and disciplined approach to remain profitable. Several practical steps can produce immediate benefits:
Menu Engineering
Menu engineering is one of the quickest levers. By analysing each item’s cost, popularity and margin contribution, businesses can:
Increase prices where appropriate
Adjust portion sizes
Remove low-performing dishes
Simplifying menus reduces waste, accelerates production and supports labourefficiency. Hybrid service models, such as ordering at the counter or via digital menus, can reduce staffing requirements without compromising customer satisfaction.
Procurement Improvements
Consolidate suppliers and negotiate longer payment terms.
Source locally for core items to reduce exposure to international market fluctuations.
Leverage group purchasing organisations for commonly used products.
Review waste patterns and align ordering with demand forecasts.
Incremental changes in procurement often compound into significant savings over time.
Energy and Waste Reduction
Low-cost measures such as:
Switching to LED lighting
Refining thermostat schedules
Improving kitchen ventilation
can deliver fast paybacks. Investments in energy-efficient equipment, such as modern refrigeration or ovens, may require upfront capital but often pay for themselves within one to three years. Reducing food waste through forecasting tools, better prep planning and controlled portioning contributes to both cost savings and sustainability benefits.
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Labour Optimisation
Data-driven rostering helps reduce overstaffing during quieter periods, and cross-training staff allows teams to adapt quickly during peak times. Technology that reduces admin time, such as automated reservation confirmations, digital ordering platforms or kitchen display systems, eases labour intensity and frees staff to focus on guest experience.
Payment Modernisation with Open Banking
While these actions help stabilise costs, one of the most impactful yet underused strategies is switching from card payments to open banking.
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The Cost of Traditional Card Payments
Traditional card payments typically cost between 1.5 and 3% per transaction, a figure that seems modest until you factor in volume. In busy hospitality and retail environments, where transactions flow constantly throughout the day, these fees accumulate into thousands of pounds lost from your profit margins each year. For a mid-sized operator processing significant daily turnover, that's real money that could be reinvested in staff, stock, or infrastructure instead.
The Open Banking Advantage
Open banking enables customers to pay directly from their bank account to the merchant’s account, bypassing card networks and reducing payment processing fees by up to 90%.
Example:
A restaurant processing £500,000 annually in card payments at a 2% fee spends £10,000 on processing.
Switching most transactions to open banking could reduce costs to £1,000–£2,000, saving up to £9,000 annually.
An internal example shows a restaurant processing £750,000 at 2.2% fees pays £16,500. Moving 60% of transactions to open banking at 0.3% reduces costs by more than half, saving £8,500–£9,000 annually.
Wonderful strengthen this opportunity by offering Pay by Bank solutions that are free until 2026, eliminating card fees entirely during the introductory period. After that, pricing is just 1p per transaction, removing the expensive percentage-based model.
Features include:
QR code payments for table or counter service
Pay by Link for deposits, online bookings, memberships and remote checkouts
Secure, simple and low-cost payments through customers’ mobile banking apps
Easy integration with existing workflows for smooth adoption
Market Adoption
Over 14 million UK consumers now use Open banking services.
Major banks like Lloyds report rapid year-on-year adoption increases.
Customers increasingly recognise bank-to-bank payments as secure andconvenient, reducing checkout friction.
Businesses should evaluate multiple providers, including Atoa, TrueLayer andGoCardless, assessing integration, settlement times, pricing and refunds. Starting with a pilot payment flow and staff training ensures a smooth rollout and measurable savings.
Looking Ahead
The hospitality and retail landscape is being reshaped by sustained wage inflation, accelerated digital adoption, and evolving consumer expectations. Operators who succeed will be those combining immediate cost control with strategic digital investment. Payment modernisation sits at the heart of this approach. It's no longer a nice-to-have; it's essential to financial resilience.
Rising costs demand action, but the good news is that payment modernisation offers tangible savings. Start by reviewing your latest merchant statements to calculate your actual card processing rate; most operators are surprised by what they find. From there, explore where open banking can replace card transactions entirely. Deposits, table payments, and online bookings are all candidates for this shift. You'll find several viable providers in the market: Wonderful payment solutions, Atoa, TrueLayer, and GoCardless all offer competitive alternatives worth comparing.
Rather than overhauling everything at once, pilot a single payment flow first. This lets you confirm the savings and train staff on customer-facing adoption without disrupting operations. The reality is straightforward: every month you delay, avoidable fees chip away at your profits. Modernising your payments now protects your cash flow and helps you keep more of what you earn.