Owners of some of London’s best independent restaurants break it down
2025 is proving to be one of the most challenging years yet for the hospitality industry in the UK, with the increase in National Insurance contributions and London Living Wage, the decrease in business rates relief, and the 20% rate of VAT putting a huge strain on the industry. Venues continue to close, with two hospitality sites closing per day in the first six months of the year and the hospitality sector accounting for 53% of all job losses in the UK since the Budget.
That’s why we’ve partnered with UKHospitality on the #TaxedOut campaign, where we’ve written an open letter to the Chancellor calling for urgent action and broken down some of London’s most popular dishes to show just how much the rising costs are decimating profits. Now operators are explaining the situation in their own words.
At Sambal Shiok, Mandy Yin charges £22 for her chicken & prawn laksa but often makes no profit from the dish, and sometimes actually loses money. Here’s how her costs breakdown: “From that £22, VAT takes 20%. This leaves £18.33. From this, ingredients take 25%, operational costs take 22%, rent and bills 7%, staffing – which used to be 40% 2 years ago – is now 46% and can go up to 55%. So, in good months, we break even and in slow months, make a loss.
“The VAT bill is £20k each quarter, which is just about manageable if sales are as budgeted. But this summer I injected £10k of my own money to settle the bill due to the extended heatwave decimating sales. This isn’t sustainable. I don’t have another £10k just sitting around to bail the business out again. I can’t charge any more for my food as this will drive customers away.”
Dish pricing is also a constant concern for Missy Flynn, co-founder of Rita’s. “I spend a lot of time thinking about how we can manage our pricing to keep people coming through the door but also pay our team a meaningful wage, create a living for ourselves, and provide the value and experience that we set out to do. Cost of goods has gone up so much that the higher rate of VAT is untenable for us and National Insurance increases have also pushed the cost of our overall wage bill up significantly. We feel strongly that hospitality has been dealt a series of blows that mean the future is concerning. We are happy to see our team make good money for their work and we aim to be as competitive as we can within our means and based on industry standards. But there are no real standards any more as there are so many variables,” she explains. “If this continues, there will be more closures, less innovation, more international chains, less people driven by passion for good food doing interesting projects, and ultimately, it’s our suppliers that will suffer the most.”
The rate of VAT is something that Ed McIlroy of The Plimsoll and Tollington’s finds particularly challenging. “The job of running a hospitality business is largely ensuring there is enough money in the pot to cover the astronomical bill that comes four times a year. It is a bitter pill to swallow when we compare our industry with European countries like France and Spain where hospitality businesses are on a drastically reduced VAT rate when compared to other businesses,” he explains. “The cost of running any business is rising at an alarming rate but in hospitality we have a really hard time justifying passing on these rising costs to customers, so whilst I have one of the most popular burgers in London and everyone thinks life must be peachy, the reality is we only make about 7% profit from a £14 burger. We’re lucky in London that there is such a high density of people and it is a really industrious city with lots of people working and earning money which they enjoy going out and spending. I worry that these people will notice prices rising for quite a while as restaurants and pubs try and navigate the changes that are coming and it will result in more and more places closing down.”
Katya Davies, founder of Llewellyn’s and Lulu’s, echoes Ed’s sentiments about the European rate of VAT, saying “Breaking down costs by dish to represent a restaurant’s costs is necessarily an impossible task! We’ve tried our best to do so to help the campaign and to grab attention where it’s really badly needed. I think what it does show is that, for most independent operators, margins are razor thin. What we have is a Government which doesn’t appear to be interested in engaging on a sector-specific level. I think the October’s Budget ENIC hikes are such a great illustration of this; no attention has been paid to the disproportionate burden this places on labour intensive industries. Many other European countries have a more nuanced approach – and that proof is in the pudding; hospitality performs better where reduced rates are applied – higher demand, more business survival, more employment. Is this not what we want?”
Even operators who don’t have the added costs associated with renting a site are still finding it tough. Jay Claus and Syrus Pickhaver, the head chefs at Rake, currently in residence at The Compton Arms, explain: “As with all our food here at Rake, we don’t sacrifice quality for cheaper ingredients. That goes from sourcing the best day boat caught fish, to the quality flour we use for our crumpets. Like all restaurants, regardless of size, VAT and National Insurance takes away from our earnings. We take the hit ourselves to ensure our staff receive a competitive wage. The rising costs of running a hospitality business make our dream of owning a pub seem more unachievable than we imagined.”
It’s a similar story for Joel Falconer at south London restaurant Wilson’s. “We took an empty unit on our local high street, and over the past 18 months we’ve built a busy neighbourhood restaurant employing local people and paying London Living Wage but we struggle to make a profit. As founders we work in the business every day, but we pay ourselves less than minimum wage, which is fine…to a point. The passion and commitment of founders can only last so long,” he says. “The changes to Employer NI felt incredibly unfair. We are now taxed on part timers who work one or two shifts a week which wasn’t the case before, and the increased allowance simply doesn’t cover this. The increase in costs for a business like ours runs to thousands of pounds a year in extra tax, which is on top of the tax we already pay. The total tax burden feels enormous, the increase in NI, along with 20% VAT and the highest wine duty in Europe all make it feel unsustainable. Right now we can’t see a way that we will be able to pay ourselves a normal wage for the work we’re doing. For small independent businesses like ours, it feels like we’re being squeezed out.”
