UK Pizza Hut to raise funds after Budget tax hikes

The UK operator of Pizza Hut, Heart With Smart (HWS), is seeking to raise over £10 million to help manage the increased financial pressures following tax hikes announced in the recent Budget. The company, which runs all 140 UK-based dine-in Pizza Hut restaurants, is exploring options for raising the funds, including the potential sale of part of the business or new investments from current shareholders.

This move comes in response to rising costs triggered by recent tax changes, including hikes in employers’ national insurance contributions and increases to the National Living Wage, both of which are expected to significantly impact businesses with large numbers of low-wage employees. Pizza Hut, along with many other businesses, has raised concerns that these tax increases will add to the financial strain faced by companies operating in the hospitality sector.

One of the primary ways HWS plans to use the raised funds is to invest in new technology aimed at reducing operational costs. The company plans to introduce touch-screen ordering kiosks and contactless table ordering systems in its restaurants. These new technologies, already being trialed in some Pizza Hut outlets, would allow for a reduction in the number of staff needed to operate each restaurant. While the company expects to lower staffing levels, it has stated that there are no immediate plans for a major redundancy program.

Starting in April 2025, employers will face an increase in national insurance contributions from 13.8% to 15%, alongside a reduction in the threshold at which contributions are paid, which will fall to £5,000. Combined with a 6.7% increase in the National Living Wage, and an even larger wage hike for workers aged 18 to 20, HWS anticipates a rise in labor costs of around £4 million, or roughly 14%, in the coming year.

Chancellor Rachel Reeves has stated that businesses will need to absorb some of these additional costs through their profits. However, a group of more than 200 hospitality leaders has written to the Chancellor, warning that these tax increases are “unsustainable” for the industry. The letter emphasized that the additional financial burden would likely result in business closures and job losses across the sector.

Other major businesses, such as Sainsbury’s, Marks & Spencer, BT, JD Sports, and Wetherspoons, have also warned that they may be forced to pass some of these higher costs on to customers in the form of price increases. However, HWS is cautious about raising prices too much, fearing that customers may not be willing to accept higher bills, particularly in a climate where consumer spending is already under pressure.

The need to raise additional funds is not solely due to the recent Budget changes, according to an insider at HWS. The company has faced a series of challenges over the past five years, including the impact of the COVID-19 pandemic, the ongoing cost-of-living crisis, and already rising labor costs. These combined factors have placed additional strain on the restaurant business, prompting HWS to seek financial support to navigate the challenges ahead.

The advisory firm Interpath has been appointed to manage the fundraising process. Interpath, a well-known firm specializing in financial restructuring, has not yet commented publicly on the situation. The Treasury has also been approached for a statement, but has yet to respond.

In the face of these pressures, the hospitality sector is clearly feeling the weight of rising costs and taxes. As businesses like Pizza Hut look for ways to reduce operational expenses and raise funds to stay afloat, the ongoing discussions around tax hikes and their impact on employers will continue to be a key focus for the industry.