This week has seen unemployment creeping up again and stagnation in the economy, but is there enough slack in the hospitality sector to absorb policy pressures, or are recent labour-market policies raising cost and supply pressures and actually killing the sector?
1. Labour costs: minimum wage and payroll taxes
Nobody disagrees that the hospitality sector is highly labour-intensive: staff costs are typically 30–40% of operating expenses. Successive above-inflation increases in the National Living Wage (NLW) and youth rates are therefore material. From April 2026 the NLW rises to £12.71 (+4.1%), with 18–20 rates up 8.5%. UKHospitality estimates these changes add about £1.4bn to annual wage costs in the sector. 1
CIPD survey data show that 43% of hospitality employers report NLW/NMW rises have affected their wage bill “to a large extent”, compared with 18% across all sectors, underscoring how exposed hospitality is to wage-floor policy. 2
On top of this, the April 2025 increase in employer National Insurance (rate up to 15% and threshold cut) raised payroll taxes sharply. One industry survey suggests this contributed to a £3.4bn cost surge across hospitality, with around one-third of businesses operating at a loss and about 60% cutting jobs and hours.3
Mechanically, higher wage floors and payroll taxes shift up the marginal cost of labour. In a low-margin, price-sensitive sector, that tends to show up as a mix of:
- price increases (raising CPI-measured “eating out” inflation),
- headcount and hours reductions, and
- capital substitution (ordering kiosks, mobile ordering, etc.) where feasible.
2. Labour supply and immigration policy
The sector historically relied heavily on migrant labour. A KPMG study estimated 12–24% of the workforce were EU nationals pre-Brexit and that hospitality needed around 62,000 new EU workers per year just to sustain activity and growth.4
Post-Brexit immigration rules, and more recently Labour’s 2025 White Paper (higher salary thresholds, tougher English requirements and skills criteria), make sponsorship in low-wage roles harder, particularly for hotels, restaurants and pubs. Legal and consultancy analyses argue these changes will reduce the pool of recruitable overseas workers and intensify shortages.5
ONS data show vacancies in “accommodation and food services” remain above pre-Covid levels: about 112,000 vacancies at end-2023 vs 89,000 pre-pandemic, though they are down from the 2022 peak of 147,000.6 So while labour-market tightness is easing, it is still structurally high, consistent with a negative supply shock from migration policy.
3. Employment, vacancies and sector resilience
Despite these cost and supply shocks, employment in accommodation and food services is at or near record levels – around 2.7 million jobs, according to ONS data summarised by UKHospitality.7 That suggests the sector has so far carefully adjusted via higher prices, productivity gains and business churn, rather than a collapse in employment.
At the macro level, the UK labour market is now softening, with unemployment at 5.1% and wage growth slowing.8 Yet hospitality still reports elevated vacancies and acute recruitment difficulties relative to other sectors.9 In economic terms, general demand for labour is cooling, but sector-specific supply constraints (immigration rules, working-time reforms, wage floors) keep the hospitality labour market tight.
4. Worker-rights reforms and training
Labour’s “New Deal for Working People”, tighter rules on exploitative zero-hours contracts, stronger day-one rights, higher sick pay, expanded flexible working, increases compliance and scheduling complexity for operators, particularly those relying on highly variable rota patterns. In the short run that raises effective labour costs; in the longer run it may reduce turnover and improve service quality, which are non-trivial cost drivers in hospitality.10
Offsetting this somewhat, recent apprenticeships and skills changes (shorter minimum duration, more flexible entry requirements, reduced contributions for under-25s) are directly supportive for hospitality employers seeking to train domestic workers.11
The Bottom line
The Government's labour-market and migration policies are materially squeezing margins and exacerbating recruitment difficulties in UK hospitality, especially for low-productivity, labour-intensive operators. However, there is sponginess in the sector and these policies are not (yet) destroying employment, which is still growing in headcount.
But Starmer needs to be careful: while there is no sign yet of a full collapse, the evidence points to a painful structural adjustment toward higher wages, tighter labour supply and more capital- and skill-intensive business models, with significant casualties among smaller and less resilient companies.
- 1
https://www.ukhospitality.org.uk/wage-increases-make-budget-support-for-hospitality-essential
- 2
https://www.instituteofhospitality.org/wp-content/uploads/2024/04/MarketIntelligenceApril2024.pdf
- 3
https://www.thetimes.co.uk/article/third-of-hospitality-businesses-losing-money-thanks-to-tax-rise-6mgqtbcmr
- 4
https://view.publitas.com/ukh/bha-kpmg-labour-migration-in-the-hospitality-sector-report
- 5
https://www.rwkgoodman.com/info-hub/how-will-the-2025-immigration-white-paper-impact-the-hospitality-sector/
- 6
https://www.ukhospitality.org.uk/vacancies-fall-by-35000-but-remain-above-pre-covid-levels
- 7
https://www.ukhospitality.org.uk/insight/hospitality-workforce-strategy-one-year-on
- 8
https://www.reuters.com/sustainability/sustainable-finance-reporting/uk-wage-growth-slows-46-three-months-october-ons-says-2025-12-16
- 9
https://catererlicensee.com/uk-labour-market-softens-as-hospitality-sector-faces-workforce-challenges
- 10
https://www.howdengroup.com/uk-en/news-insights/how-will-labours-new-deal-workers-impact-hospitality
- 11
https://www.ukhospitality.org.uk/our-response-to-apprenticeship-changes
