Hospitality shares hit by Budget tax hikes

Share prices in many major hospitality firms have fallen significantly since the week preceding the Budget, as investors have digested multi-million pound tax hikes.

Shore Capital research published on Monday showed Mitchells & Butlers shares were the worst hit, down 13 per cent compared to 23 October, while JD Wetherspoon fell 12 per cent and Marston’s shares were 10 per cent lower.

Shares in Premier Inn owner Whitbread have dropped 8 per cent, and the ten-pin bowling operator Hollywood Bowl is down 6 per cent.

Shore expects all five companies to incur a financial hit from the National Insurance and National Living Wage hikes announced by Chancellor Rachel Reeves just under a fortnight ago in her first Budget. 

From April 2025, employers will pay an NI rate of 15 per cent on staff salaries above £5,000, rather than the current 13.8 per cent levy on wages exceeding £9,100.

Concurrently, the NLW will rise by 6.7 per cent to £12.21 per hour, and the minimum wage for 18 to 20-year-olds will go up by 16.3 per cent to £10 per hour.

The hospitality industry has widely criticised the changes, warning they will push up costs for firms still struggling to recover from the Covid-19 pandemic and potentially lead to more venues closing.

Shore Capital estimated these changes could add around 4 per cent to annual labour costs.

It believes the NI threshold reduction will represent the ‘biggest contributing factor’ to extra employment expenses.

On an absolute basis, All Bar One owner M&B will be the most financially impacted, paying up to £40million in further costs, followed by JD Wetherspoon with around £35million in added costs, and Whitbread, who will pay up to £30million more.

But, Shore Capital said JD Wetherspoon faces the largest potential hit to pre-tax profits; it thinks they could slump by 46 per cent.

Last Wednesday, the company’s founder, Sir Tim Martin, cautioned of widespread price rises across Britain’s hospitality sector.

Martin said that although cost inflation had moderated over the past two years, it had ‘jumped substantially again following the Budget. All hospitality businesses, we believe, plan to increase prices as a result’.

He made the warning alongside results showing Wetherspoons achieved record sales in the 14 weeks ending 3 November, helped by higher food and drink orders, as well as double-digit percentage growth in slot and fruit machine revenues.