Where the money goes: anatomy of a restaurant in 2026
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Where the money goes: anatomy of a restaurant in 2026<br>What a year of wage rises, National Insurance and lost rates relief actually does to a menu.
Dan O'Regan<br>Jun 01, 2026
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A year ago this week I published a piece called Where the Money Goes — an anatomy of a British restaurant in 2025. I took a £25 schnitzel off the menu at Lapin, pork with peas and bacon and morels, and cut it open on the page. £4.16 of VAT. £6.30 of food. £7.30 of labour. £6.30 of overheads. 94 pence of profit, on a good day. I said that running a restaurant that year felt like hosting a dinner party during a fire drill.
One comment has stayed with me, because it held the whole problem in a single sentence. Vanilla Black wrote that however many times we explain the numbers, a portion of the public will stay certain they’re being overcharged, because they’ve done the maths on a Tesco shop. There it is. The diner arrives with a yardstick, and the yardstick is the supermarket, or the rate of inflation, or what the same dish cost last year. None of those things can measure most of what has actually moved.<br>Notes on a Napkin is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
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So let me come back to it, a year on, because a great deal has moved — and almost none of it to the magnitude the yardstick would predict.<br>When I wrote last spring, the worst of it was still arriving. Employer National Insurance had just gone up — the rate to 15%, and the threshold at which an employer starts paying it cut from over £9,000 to £5,000 — and we were all bracing for what that would do across a full year of wages. The bracing is over now. It has arrived, and it sits in every set of accounts in the country. The wage floor, meanwhile, has climbed again: £12.71 an hour from this April, up from £12.21 a year ago, up from £11.44 the year before that. Two steps up a staircase in two years.<br>Then, on the last day of March 2026, the business rates relief that hospitality had leaned on since the pandemic simply ended. It was replaced by a permanently lower rate, which sounds like help right up until you notice that the same reform revalued every premises in the country against rents that had recovered since Covid. A lower rate applied to a higher value exercises itself, for a great many operators, as a bigger bill, not a smaller one.<br>And VAT, the one lever that would have changed the arithmetic at a stroke, didn’t move at all. The trade asked — loudly, all year — for a reduced rate on eating out, the kind most of Europe has already adopted. The answer was no. No cut, no change to the threshold, nothing. 20%, exactly where it was, while France sits near 10% and Germany has just legislated its way down to 7%.<br>Now hold all of that against the diner’s yardstick. Inflation is running at 2.8%. A reasonable person, measuring fairness by that number, expects a restaurant’s prices to rise by roughly the same and feels cheated when they rise by more. But for a typical labour-heavy independent — the kind of place most people picture when they picture a restaurant — the rise needed simply to stand still this year, same dishes, same thin margin, is closer to 8%. More than double what the yardstick calls fair.<br>About a third of that is ordinary inflation. Food, energy, and the overheads that creep up the way everything creeps up. That third behaves exactly as the diner expects. The other two-thirds came from government, not the market. Roughly half of that policy share is the wage itself, and that half I will defend to anyone, because I can see precisely where it goes. It goes to the people standing in the kitchen, who should not be poor for the privilege of feeding the rest of us. The other half is employer National Insurance and the lost rates relief: costs that reach no worker’s pocket, that nobody campaigned for, that exist only as a transfer from the business to the Treasury. Nearly as large as the wage rise everyone wanted, and invisible to everyone who didn’t.<br>So when dinner costs more, the diner — yardstick in hand — reaches for one of the only two explanations it allows. Either the restaurant has got greedy, or they themselves have got profligate. Both are wrong. Prices didn’t move because operators wanted more, and they didn’t move because diners wanted too much. They moved because we, collectively, made a decision — pay low-paid people better — and then skipped the second conversation entirely. The one about who carries the cost of the first.<br>We asked for the wage floor to rise, and we were right to. We just forgot to ask who’d pick up the tab. So it turned up on the bill, and we acted surprised to find it there.<br>None of this is restaurants alone, though a restaurant is the only place I can speak from honestly. The salon, the café, the garage at the end of the road — any business that is mostly people, in a...