The warning comes as Chancellor John Healey is expected to announce an above-inflation increase to the National Living Wage in Wednesday’s Budget, taking the adult minimum wage above £13 an hour for the first time from April 2027.
According to The Telegraph, the rate is likely to rise by just under 4%, compared with current inflation of 3.5%.
UKHospitality chief executive Allen Simpson says: “Hospitality businesses recognise the importance of ensuring teams are fairly rewarded and our sector is proud to provide jobs and career opportunities for millions of people across the UK.
“However, a 3.9% increase in the National Minimum Wage and National Living Wage will add further pressure for hospitality businesses already grappling with substantial increases in costs. For a labour-intensive sector like hospitality, wage increases of this scale represent a considerable additional burden that many businesses will struggle to absorb.
“This announcement makes it even more important that the Government uses the Budget to back hospitality businesses by reducing the sector’s tax burden. Without action to address mounting cost pressures, operators will have less capacity to invest, create jobs and drive growth in communities across the country.”
The hospitality sector is expected to be among those most affected by an increase because of its reliance on entry-level and lower-paid roles.
Industry estimates suggest around 330,000 hospitality jobs are paid at or close to the minimum wage.
The Telegraph also reports that Healey is expected to moderate increases to youth minimum wage rates.
Labour had previously pledged to accelerate rises for younger workers as part of a longer-term plan to remove age differentials, but business organisations have argued that steep increases have made it more expensive to recruit younger employees.
Simpson says: “Getting young people into work is a moral imperative for the whole of society.
“If the Government are slowing the minimum wage increase for young people, that will help, but we still desperately need a reverse of the NICs jobs tax which has made early career roles unaffordable.”
Louise Hellem, chief economist at the CBI, told The Telegraph that rising employment costs had made businesses more cautious about hiring and reduced their ability to invest.
“This has had a significant impact on firms’ ability to create entry-level roles, making it increasingly difficult for young people to take that crucial first step on the career ladder,” she said.
Alex Hall-Chen, principal policy adviser at the Institute of Directors, warned that businesses were still absorbing recent increases in employer National Insurance contributions alongside higher wage costs.
She said: “Combined with an increase in the National Living Wage of over 40% since 2021, there is a crisis in the cost of employment which is leading many employers to curb hiring and look to automation and outsourcing as alternatives.”