The UK retail and hospitality sectors are entering the crucial winter trading period under renewed pressure following the Chancellor’s November Budget. Economic growth remains weak, and the Office for Budget Responsibility has downgraded its annual economic forecasts through to 2030, signalling that the operating environment for consumer-facing businesses is likely to remain difficult for some time. Meanwhile, insolvency levels continue their upward trajectory: 2,029 company insolvencies were recorded in October 2025, a 17% increase compared with the same month last year. These rising numbers show that many operators were already under significant strain prior to the Budget’s new cost increases.

How will it impact the retail and hospitality sectors?

Both retailers and hospitality operators remain highly exposed to the Budget’s impact on consumer confidence and disposable income. They continue to face elevated wage, energy and supply-chain costs, while household budgets remain tight. The rise in minimum wage requirements, alongside the ongoing impact of the employer National Insurance increase introduced in the Chancellor’s first Budget, is expected to place further strain on profit margins. From April, the National Living Wage will rise to £12.71 for workers aged 21 and over, and £10.85 for those aged 18–20, following last year’s 16.3% uplift for younger workers. For staff-intensive hospitality businesses, these increases may require reductions in staffing levels, shorter opening hours, or delays to planned investment. Analysts also expect consumer spending to remain low as frozen tax thresholds pull more individuals into higher tax bands, reducing disposable income. Industry representatives warn that the cumulative effect of rising labour and operating costs may prove a “hammer-blow” for some operators, particularly when higher wage bills coincide with VAT liabilities and quarterly rent payments early in the new year.

The Budget will likely have an even larger impact on the hospitality sector, largely due to the significant increase in business rates. Although the government has introduced a lower multiplier for around 750,000 high-street retail, leisure, and hospitality premises, the reduction is less generous than anticipated. This is because business rates are linked to a property’s assessed annual rental value, and recent revaluations mean that many operators are entering the new tax year with a higher starting point for their bills. The withdrawal of the Covid-era 40% business-rates discount from April will remove a key buffer against these rising valuations, meaning many operators will see their bills increase despite the adjusted multiplier. Industry representatives have described the outcome as a “stealth tax”, warning that the combination of higher valuations, rising operating costs, and the loss of reliefs could leave more hospitality operators at risk of closure when the new liabilities take effect in April.

Although the Budget expands certain investment-focused initiatives – such as extending reliefs under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs), which encourage investment in companies in the early stage of growth – these measures offer limited immediate benefit to consumer-facing businesses. EIS and VCT reliefs are designed for young, fast-growing companies, not for mature high-street operators contending with day-to-day cashflow constraints. For most retailers, pubs, and restaurants, the challenge is not attracting investment but managing rising wages, higher business rates, and weakening demand. As such, these initiatives are unlikely to alleviate the short-term financial pressures facing the sector.

Taken together, the Budget introduces measures that, while intended to support long-term economic growth, may exacerbate short-term distress in retail and hospitality. Without meaningful targeted relief, the risk of further insolvencies in early 2026 remains high.

What should company directors do?

If you are a director of a company which is facing financial difficulties, you should consider taking the following steps, to protect your own personal liability and the company creditors:

  • Seek independent advice from a lawyer or licensed insolvency practitioner as soon as you become aware of potential financial difficulties. They can advise you on your options and whether a recovery strategy or insolvency strategy is more appropriate.
  • Always keep your director duties in mind. Your actions must comply with these duties and may be scrutinised at a later date by an officeholder if the company enters into a formal insolvency process.
  • Only continue trading if it is the best course of action for creditors as a whole and take steps to minimise the loss to creditors.
  • Maintain a good and consistent line of communication with all creditors.
  • Have regular board meetings to discuss the company’s financial position and keep detailed and accurate minutes which set out each step taken to improve the creditor’s position or ensure their interests are not prejudiced. Keeping minutes will assist the board should they be required to explain their decision-making later.
  • Immediately respond to any demands for payment and legal proceedings served on the company, even if you cannot pay them.
  • Ideally every week you should ensure that realistic budgets, forecasts, and management and trading accounts are reviewed.
  • Ensure accounts are being properly kept up to date.
  • Conduct a full review of the costs and expenditure of the company; consider what non-essential expenditure can be reduced or avoided at an earlier stage.
  • Check what insurance cover the company has and review the policy documents carefully and seek guidance from your broker if necessary.
  • If avoiding insolvent liquidation is not an option, you should take immediate advice on instituting a formal insolvency procedure without delay.

If you are concerned about the above impacts or the financial health of your company, please contact Aman Sehgal.