How rising costs are reshaping hospitality, and what small businesses can learn

New data from UKHospitality and a coalition of industry bodies shows how rising costs are already feeding into business decisions across the hospitality sector, with many planning to scale back investment, reduce hours or cut jobs.

With increases to employment costs and business rates now in effect, the findings highlight the pressure even relatively small cost changes can place on a sector that typically operates on tight margins.

And, while the data focuses on hospitality, it reflects a broader set of pressures that many small businesses continue to navigate.

Cost increases are feeding directly into business decisions

According to the survey, a significant proportion of hospitality businesses expect to make operational changes as a direct result of higher costs:

• 64% say they will cut jobs

• 51% plan to cancel investment

• 42% expect to reduce trading hours

• 15% report they may need to close

That two-thirds of businesses are seriously considering cutting jobs indicates that cost pressures are being felt broadly across the sector, and aren’t just concentrated among those already under significant strain.

It also points to a shift in focus from growth to stability. Investment and hiring are among the areas businesses are most likely to scale back, suggesting a priority on managing existing operations over expansion.

For SMEs more broadly, this reflects a familiar challenge: when costs rise quickly, the immediate response is often to pause or scale back forward-looking plans until there is greater clarity over the trading environment.

Alongside tax and employment-related costs, energy continues to be a key concern for hospitality businesses.

Even before recent geopolitical developments, 93% of those surveyed said energy costs were already affecting profitability. For businesses that rely on constant heating, refrigeration or cooking equipment, energy is a core operating expense rather than a variable one.

Of course, this dynamic is not unique to hospitality. Across sectors, higher fixed costs reduce flexibility, making it harder for businesses to absorb other pressures, such as changes in customer demand, rising supply chain costs, or staffing challenges.

A pause in investment can have wider implications

The survey also highlights how cost pressures are shaping investment decisions, with many businesses delaying or cancelling plans to expand or upgrade their operations. 

When asked what they would prioritise if costs were lower, respondents cited:

• Refurbishing or upgrading existing sites (70%)

• Creating new jobs (46%)

• Expanding into new locations (27%)

This suggests that businesses are (understandably) prioritising consolidation and operational stability over growth, taking a measured approach in the face of rising costs and future uncertainty.

For SMEs more broadly, this reflects a common pattern: when the future is uncertain, protecting existing operations is often the most practical way to manage risk while remaining prepared to pursue growth when conditions become more favourable.

Managing cash flow in a higher-cost environment

Cash flow management is particularly important in periods where outgoings are rising or less predictable. Some businesses may turn to short-term financial tools, such as business credit cards, to help manage day-to-day expenses or bridge temporary gaps between income and expenditure.

Used carefully, these tools can provide additional headroom while decisions around pricing, staffing, or investment are being made. However, as with any form of borrowing, the key is ensuring they align with the business’s financial position and longer-term plans.

A sector calling for targeted changes

Hospitality bodies have outlined several areas where policy changes could support the sector. According to the survey:

• 89% of businesses support a reduced rate of VAT for hospitality

• 74% back permanent reform of business rates

• 65% would welcome adjustments to employer National Insurance contributions

For hospitality, and SMEs more broadly, this highlights a recurring theme: businesses respond most strongly to the costs that directly limit their flexibility. When these pressures are eased, companies are more likely to shift from a defensive stance toward investment, hiring, or expansion.

The survey underscores that targeted policy adjustments, focused on the costs most acutely felt, can directly influence business behaviour. By easing the pressures that bite hardest, targeted changes could help businesses move from simply surviving to pursuing their growth and investment plans with greater confidence.