Scottish restaurants, pubs and hotels facing closure over £369m tax 'bombshell'

Labour ministers are under growing pressure to exempt hospitality businesses from their “misguided” National Insurance hike as research revealed the increase could cost Scottish firms £369 million over five years.

Critics fear the move, branded a “jobs tax”, will act as a hammer blow to firms that are already on the “precipice of closure”.

The Liberal Democrats have called for a rethink from the UK government as the party revealed research showing the additional tax bill for pubs, hotels and restaurants in Scotland is likely to be more than £70m each year.

Changes announced by Chancellor Rachel Reeves in her Autumn Budget mean the rate employers pay National Insurance will rise from 13.8 per cent to 15 per cent. The threshold for paying it on each annual salary will also fall from £9,100 to £5,000.

Liberal Democrat Scottish affairs spokesperson Christine Jardine said the hike risked many hospitality businesses “going to the wall”.

Christine Jardine MP. Photo by Lisa Ferguson. | National World

The opposition party is also calling on the UK government to negotiate a Youth Mobility Visa scheme with the EU so that businesses can recruit the workers they need to fill vacancies.

The Lib Dems highlighted the Institute of Directors had said it would be “particularly beneficial” for sectors like hospitality.

Ms Jardine, the MP for Edinburgh West, said: “Restaurants, pubs and hotels across Scotland are warning that the UK government’s National Insurance hike risks many of them going to the wall, but the Chancellor just doesn’t seem to be listening.

“Local businesses like these are the beating heart of our communities, but many are struggling after years of Conservative economic vandalism and poor growth under the SNP. This jobs tax would hammer them again, hitting growth and putting thousands of jobs at risk.

“To get our economy growing strongly, we should be helping our hospitality sector, not hurting it. That is why Scottish Liberal Democrats secured substantial business rates relief for hospitality in the Scottish Budget.

"The UK government needs to do far more to support hospitality. Instead of ploughing ahead with this misguided tax hike, the Chancellor needs to listen to local businesses and scrap it now.”

However, Stephen Montgomery, from the Scottish Hospitality Group, said all parties needed to hear the concerns of businesses.

“The Scottish Hospitality Group have been calling on all political parties to stand up for the hospitality sector in Scotland, and the reasons included not only the absolute hammer blow of National Insurance increases, but also to support a reduction in non-domestic rates in the Scottish Budget for all licensed hospitality,” he said.

“Unfortunately, having seen that the Lib Dems will vote in favour of the Budget, along with the Scottish Greens, added to the fact that we have been asking for a meeting with the Scottish Lib Dems for quite some time since the Budget statement on December 4. It begs the question of why start shouting now when we have been talking about this for long enough, and also, why not after the UK Budget?

“We remain open as always to speaking with all political parties, but they need to listen to us and not just meet to tick a box of engagement.”

The Scottish Licensed Trade Association (SLTA) has previously said many in the licensed hospitality industry will now be questioning whether or not they can maintain their existing staffing levels, as a result of the National Insurance hike.

The organisation said many pubs and bars were already “teetering on the precipice of closure”. Recent figures suggested 20 per cent of UK pubs and bars are technically insolvent.

An HMRC impact assessment states the changes will impact around 1.2 million employers, and they are forecast to raise between £23.8bn and £25.7bn a year.

However, the UK government is providing compensation to public sector employers, worth between £4.7bn and £5.1bn a year

A UK government spokesman said: “We delivered a once-in-a-Parliament budget to wipe the slate clean and deliver the stability businesses need, laying the foundations for economic growth.

“In addition to capping corporation tax for the duration of parliament, the Scottish Government will receive additional Barnett funding on top of a record £47.7bn settlement as part of support provided in relation to changes to employer National Insurance.”

A Scottish Government spokesperson said: “We recognise the challenging situation the UK government’s rise in National Insurance presents for the hospitality industry.

“Our Budget brings forward measures to provide support for the hospitality sector, including in 2025/26 offering 40 per cent relief - capped at £110,000 per business - for the 92 per cent of hospitality premises with a rateable value up to £51,000.

“We will also continue to offer 100 per cent relief in 2025/26 for hospitality businesses located on islands as defined by the Islands (Scotland) Act 2018, and in prescribed remote areas, capped at £110,000 per business.

“Other benefits in the Budget for the hospitality sector include the most generous small business rates relief in the UK. Around half of properties in the retail, hospitality and leisure sectors will continue to be eligible for 100 per cent Small Business Bonus Scheme relief.”