Last month, as AHC gathered in Manchester under the banner of mastering risk for reward, we argued that the risk hotel investors still underprice is leadership. On Wednesday, Chancellor John Healey delivered his first Budget. With the cards now on the table, it is worth asking what has actually changed for owners and investors, and what has not.
What the Budget did
Colliers summed up the mood well: "This was clearly a Budget hampered by geopolitical uncertainty." With higher energy prices squeezing the public finances, the Chancellor chose stability over stimulus. For hotels, five measures matter most.
Business rates. This is the headline for hospitality. From April 2027, the government says retail, hospitality and leisure properties in England will see their rates frozen in real terms, reduced or cut to zero for two years. The Small Business Rate Relief threshold for these businesses rises from £12,000 to £18,000, taking around 70,000 more businesses out of rates altogether, and pubs, music venues and social clubs receive a further 20% reduction. For most investment-grade hotels, the result is stability rather than relief: no real-terms increase, but no cut either. Owners of larger assets should confirm how the freeze applies to properties on the higher multiplier above £500,000 of rateable value.
VAT. Despite a high-profile industry campaign, VAT on hospitality stays at 20%. UKHospitality's Allen Simpson called the rates package "a first step towards fairness", while making clear the campaign for a VAT cut continues.
Employment costs. The National Living Wage rises by 3.9% to £13.21 an hour from 1 April 2027, with the 18 to 20 rate rising to £11.27. Employer National Insurance is unchanged, so the lower threshold of £5,000 remains. For a labour-intensive sector, Simpson warned, rises of this scale are "a considerable additional burden".
The visitor levy. Mayors will be able to apply an overnight visitor levy from 2028, as part of a wider package of local tax retention. Early reporting suggests there will be no national cap. Edinburgh's 5% levy remains the closest live case study of what collection, pricing and guest communication involve in practice.
Devolution and the cost of capital. From next year, 20% of business rates revenue will go to mayors and local authorities, rising to full local retention by the end of the decade, alongside £1.5 billion of low-cost borrowing for mayors. Rates, levies and growth incentives will increasingly differ from one city to the next. At the same time, the OBR expects inflation to rise to 3.4% next year, and the bank surcharge doubles from 3% to 6% from January 2027, a cost Colliers notes may be passed on to borrowers. Capital allowances also shift, with the main first-year allowance rising from 40% to 50% from April 2027, which favours bringing refurbishment and FF&E spend forward.
What the Budget did not change
Several things were true before Wednesday and remain true now.
The capital is still there. The UK remained Europe's most liquid hotel market in the first half of the year, with Savills putting UK transactions at £2.1 billion, almost £500 million ahead of the same period in 2025.
The margin squeeze has not gone away. Rate growth has been running ahead of last year while gross operating profit margins have slipped, because labour, energy and property costs are rising faster than revenue. A 3.9% wage rise and higher financing costs push in the wrong direction, and a rates freeze does not offset them. A Budget can ease or add to that pressure at the edges. It does not resolve it.
And the employment changes already legislated are about to land. From 1 January 2027, the qualifying period for unfair dismissal falls from two years to six months, and the cap on compensatory awards is removed. For senior, well-paid appointments, the cost of a poor hire rises sharply in nine weeks' time.
What it means for the investment case
Budgets tend to be read for their headline numbers. For hotel investors, the more useful reading is operational. Every measure that touches rates, wages, VAT or a levy ultimately lands on a property P&L, and someone in the business has to turn it into pricing, staffing and capital decisions.
That is where the gap between assets opens up. Two hotels exposed to the same policy change can respond very differently depending on the quality of the general manager, the finance director and the asset management team above them. One models the change within a week and adjusts. The other waits to be told.
As capital continues to rotate towards owners and operators with longer hold periods, that difference compounds. A single percentage point of margin, protected or lost every year across a ten-year hold, is a material difference in value at exit.
Where we are seeing the brief change
Since September, our conversations with investors and owners have moved in three directions.
Commercial finance leadership. Boards want finance leaders who can model policy and cost scenarios quickly and explain them to owners and lenders, rather than report on them after the event.
Asset management depth. Investors with longer hold periods are strengthening in-house capability to actively influence operating performance, rather than monitoring the operator from a distance.
Assessment before appointment. With the six-month qualifying period approaching, clients are spending more time testing judgement, resilience and behavioural fit at senior level, and taking less comfort from a strong CV and a good interview alone.
Three steps before the year ends
- Re-run the numbers asset by asset. Translate the Budget into each property's 2027 budget rather than relying on portfolio averages. The rates freeze, the wage rise and the new capital allowances will land differently on every asset.
- Name an owner for policy risk. Rates, the levy and employment law cut across finance, operations, pricing and HR. Someone senior needs to own the joined-up response, particularly as local rules begin to diverge.
- Review senior hiring plans for the first quarter. If a key appointment is planned for early 2027, invest the time now in a robust assessment process. The cost of getting it wrong is about to rise.
Playing the hand we have been dealt
This was a Budget that removed a downside risk on rates rather than dealing hotels a stronger hand. Wages, energy and the cost of finance will keep the pressure on margin, and the visitor levy adds a new local variable from 2028. The fundamentals that keep drawing capital to UK hotels remain intact. What will separate performance in 2027 is execution, and execution comes down to people.
If you would like to discuss leadership, organisational design or executive search in light of the Budget, please contact Dan Akhtar, Managing Director, at dan@hpgsearch.com or on +44 (0)20 8600 1166.