The Autumn Budget 2025 delivered by the UK government on 26 November 2025 contained a mixture of support for business (especially bricks and mortar retail, hospitality, leisure) and a raft of tax and investment income changes designed to raise long-term government revenue. 

Key measures include:

  • A permanent cut in business rates for about 750,000 retail, hospitality and leisure properties described as “the lowest tax rates since 1991” for those sectors. 
  • Changes to tax on investment income: from April 2026, the tax on dividends rises by 2 percentage points (ordinary rate from 8.75% – 10.75%, higher rate to 35.75%), with similar increases for savings and property income. 
  • Freeze on income tax thresholds extended meaning “fiscal drag”: pay rises end up taxed more heavily as thresholds stay fixed. 
  • Changes to capital allowances: from 2026 a new 40% first year allowance for certain assets; but writing down allowances for many assets reduced from 18% to 14%. 
  • The government’s outlook revised: productivity growth forecasts have been scaled back and business investment growth is expected to stay soft due to weaker profits and higher capital costs (interest rates).

In short: a mix of modest payouts for certain sectors, paired with broader tax increases and tighter macroeconomic headwinds.

Where the Budget Helps the Franchise Industry

Business-rate reduction = lower overheads for physical-space franchises

One of the clearest positives for the franchise sector especially those with physical outlets (retail stores, cafés, fast-food, gyms, leisure, hospitality) is the permanent business rates discount for qualifying retail, hospitality and leisure properties. For hundreds of thousands of smaller outlets, this reduces one of the biggest fixed costs, property tax. 

For franchise owners this means improved cash flow, especially in sub prime locations (smaller towns, high-street locations, non-flagship). It could make marginal outlets viable and potentially encourage expansion into underserved areas.

For franchisors (the parent brand), a lower business rate burden across many units improves the attractiveness of franchising easier for prospective franchisees to achieve breakeven, safer assumptions for unit-level profitability, better ROI for expansion plans.

Upfront investment allowances – helps refurbishments, equipment, expansion

The Budget retains generous capital allowances for plant, machinery and other assets plus introduces a 40% first year allowance for certain main rate assets from 2026. 

For franchises this is useful: opening a new outlet often requires furniture, fittings, kitchen/production equipment (for food), point-of-sale hardware, IT infrastructure or refurbishments. The allowance reduces the effective cost of that investment, improving cash flow and reducing capital lockup. This may make expansion (new units or refurbishing existing ones) more affordable and less risky.

Greater attractiveness for expansion or scaling via corporate investment

With lower operating overheads and favourable investment allowances, franchise operators (or larger franchise groups) might be more willing to expand, refurbish or roll out new locations. If a franchisor wanted to scale quickly or attract external equity financing  the lower fixed costs and manageable investment profile make the economics more appealing.

Benefit for smaller or independent operators – making high-street presence more viable

Not all franchises are big chain, big capital brands. Many smallish independent franchisees rely on tight margins. The reduced business rate burden gives them breathing space especially in areas outside prime city centre locations, where rents might already be modest but rates have been a heavy burden. This could encourage further decentralised expansion.

 

Where the Budget Hurts – Headwinds for Franchises & Franchisees

Dividend- and investment-income tax hikes hit owner returns and investor appetite

From April 2026, tax on dividends increases by 2 percentage points. Given that many franchises are structured as limited companies, with owners/franchisees relying on dividends (particularly after reinvesting most earnings), this reduces the after tax return on capital. That makes the proposition of owning a franchise slightly less appealing especially as a passive or semi passive investment.

For franchisors, it may dampen appetite for external investors or make expansion via equity less attractive (since investor return expectations shrink).

“Fiscal drag” – rising personal tax burden may reduce consumer spending

By freezing income-tax thresholds, the Budget effectively pushes more people into higher tax bands over time, a phenomenon known as “fiscal drag”. 

This has two knock on effects for franchises:

  • For consumer facing franchises (retail, hospitality, leisure), reduced disposable income among consumers means potential drop in sales.
  • For franchise owners/managers earning salaries (in addition to dividends), personal take home pay may grow slower than expected reducing disposable income, reinvestment capacity or appetites for expansion.

In effect, the Budget tightens both sides of the equation, franchise side returns shrink and consumer side demand weakens.

Softer productivity and weaker business investment – poor growth backdrop overall

According to the outlook from the Office for Budget Responsibility, real rate returns on capital are expected to fall from 12.5% in 2022 to about 10.75% in 2025, with a modest recovery to 11% by end of the decade. 

At the same time, business investment growth is expected to remain weak, due to lower profit growth, higher cost of capital (interest rates) and subdued business sentiment. 

For franchises, this means that plans for aggressive expansion especially those relying on debt/credit financing may be harder to justify. New units may yield weaker returns and financing costs will be higher.

Pressure on operational budgets – costs outside business rates still rise

Even if rates drop, franchises still face increasing costs labour costs (due to minimum wage rises), overheads, inflation, rent, energy, etc. Many of these may be outside the scope of the rate re-relief. Combined with reduced returns and weaker spending, this squeezes margins, especially for smaller franchisees with less cushion.

Additionally, for franchises that rely heavily on owner return through dividends (e.g., independent franchisees rather than big corporates), the higher dividend tax reduces net return making it less attractive to stay in or enter the franchise.

 

What This Means for Different Stakeholders in the Franchise Ecosystem

Independent Franchisees (small owners, single or few units)

  • Potential Positive: Lower business rates improve profitability. Combined with investment allowances, refurbishment or re-fit of premises becomes more affordable. For smaller operators in non prime areas, this could be the difference between being marginal and profitable.
  • Potential Negative: Higher personal tax burden (via fiscal drag and dividend tax hike) reduces take home pay, which may make owning a franchise less attractive especially given risk vs reward. If consumer spending falls, revenues may stagnate or drop, hurting sustainability.

Net effect: some small franchisees may pull through stronger than before, but others (especially vulnerable/marginal ones) may find the profitability squeeze too tight and exit.

Franchisors (brands, networks looking to expand)

  • Potential Positive: The economics of new unit roll-outs or refurbishments look better with lower business rates and investment allowances. Offers a chance to expand footprints, refresh brand aesthetic and push growth.
  • Potential Negative: With investor returns compressed and consumer demand uncertain, expansion may come with higher risk. Franchisors may have to absorb more of the cost or offer better franchisee deals to attract sign-ups thereby reducing margin.

Net effect: likely more selective expansion, focusing on high potential or underserved markets, possibly slower growth but more sustainable; tougher to raise capital via dividends or outside investors.

Potential Franchisees (people considering buying a franchise)

  • The reduced overhead and better allowances may make franchise ownership seem attractive but the longer term returns are less certain (taxes higher, economy slower, margins squeezed).
  • For cautious potential buyers, the Budget should at least trigger a more conservative approach: look for strong unit-level profitability, lower-risk locations, strong brand support. Avoid heavily leveraged expansion ideas.

Net effect: likely fewer speculative or “get-rich-quick” franchise entries, more cautious, long term oriented buyers if any.

Franchise sectors most likely to be affected (positive or negative)

Good fit: retail, hospitality, leisure especially smaller high street shops, fast-food, cafés, gyms, casual-dining, convenience stores. These sectors get the business rate relief and benefit most from cost reduction.

At risk: High-end/premium franchises (luxury retail, large flagship stores, large-area outlets) such locations may suffer if the new surcharge on high value properties (over £500,000) increases their costs. Also franchises in more discretionary/spending sensitive industries may suffer if consumer spending dips.

Forecast for 2026 (and near term) – What Franchise Industry Should Prepare For

Based on the Budget’s measures, the OBR’s broader economic forecasts and the structural dynamics of franchising, here is what I expect for 2026 (and slightly beyond):

1. Modest Uptick in Franchise Expansion – but Selective

In 2026, some franchisors will likely seize the moment. Expect selective expansion:

  • Smaller, leaner brands (especially in retail, convenience, quick service, budget hospitality) will open new units especially in underserved towns and suburbs where rates and overheads are manageable.
  • Franchisors may refresh or refurbish existing estates (fresh looks, rebrand, modernise) using investment allowances perhaps to boost footfall in a tougher consumer environment.

However, expansion will not be rampant. Given the macroeconomic headwinds (slow wage growth, weak capital returns, slower business investment), growth will be measured and cautious.

2. Consolidation, Closures or Restructuring of Weak Outlets

Some existing franchise units especially underperforming ones in marginal trade areas will struggle. With weakened consumer spend (due to fiscal drag) & higher operational costs & lower net returns, some marginal franchisees may exit, leading to consolidation or closures.

Franchisors might buy back struggling units, restructure deals, or renegotiate leases. We may also see increased “franchise rescue” activity, where larger groups absorb weaker franchisees to protect brand reputation or economies of scale.

3. Pressure on Franchise Fees & Profitability – Leading to Margin Compression

Expect downward pressure on profitability across the board:

  • Dividend tax hike will hit returns for owner operators or franchisors extracting profits, reducing the attractiveness of franchise ownership.
  • Reduced consumer spending may compress revenues, especially for high street retail, casual hospitality and discretionary service franchises.
  • Labour costs and other overheads (inflation, utilities) remain high squeezing margins further.

Thus, many franchises will recalibrate: less aggressive growth, more focus on cost control, leaner operations, pushing for efficiency and value oriented offerings rather than premium.

4. Shift Toward Value Based or Budget-Friendly Franchises – Growth in Discount/Convenience Segment

As households feel squeeze from higher taxes and inflation, demand may shift toward more affordable/essential service franchises: discount retail, convenience stores, value fast-food, budget gyms, affordable leisure services, low-cost personal services.

Brands operating in those segments will likely grow faster, attract more investors/franchisees and out perform premium or discretionary brands.

5. Harder Financing & Slower External Investment Growth – Less Private Equity/Investor-Led Expansion

Because returns on capital are forecast to remain depressed (real rate down, slow productivity) and investors face higher tax on dividends and investment income, attracting external capital will be harder.

Franchisors seeking funding may have to accept lower valuations, rely more on debt or internal cashflow but debt will be costlier given higher interest rates. This will slow down major franchise network expansions, acquisitions or buy-outs.

6. Importance of Lean, Efficient Business Models & Operational Discipline

Survival and modest growth will heavily depend on operational efficiency. Franchises with lean staffing, efficient supply chain, cost control and lower fixed overhead will do better.

Franchise owners will be more selective: performing thorough due diligence on unit level economics, careful location selection, conservative growth projections and likely smaller footprints (e.g., smaller retail outlets, leaner store formats, shorter leases).

 

Strategic Recommendations for Franchise Stakeholders (2026-onwards)

If you are a franchisor or franchise owner/manager or considering buying a franchise, what should you do?

  • Run fresh stress tests and forecasts: Use realistic assumptions for consumer demand (weaker growth), tighter margins, higher tax burden. Don’t assume “old normal” profitability.
  • Focus on necessity or value based franchise concepts: budget retail, essentials, convenience sectors, discount-oriented food & beverage these will likely outperform.
  • Keep capital expenditure selective and efficient: Use the new allowances wisely (e.g., for necessary refurbishments, energy efficiency, equipment that improves margins or reduces operating cost). Avoid lavish build outs or big capex unless return is clearly justified.
  • Prefer lean store formats and low overheads: smaller footprint units, flexible leases, variable staffing to remain agile if consumer demand dips.
  • Watch cash flow carefully, dividends less attractive: If you’re relying on dividend income for return, reconsider, net return will be lower and distribution policies may need adjusting.
  • Offer affordability and value to customers: With households under pressure, franchises offering cost effective, value-driven propositions (discounts, budget offerings, essential services) will see more traction than premium or luxury positioning.

The Bottom Line: It’s About Evolution, Not Explosion

The Autumn Budget 2025 delivers a mixed bag for the UK franchise industry. On one hand, there are real structural incentives for growth, lower business rates for retail/hospitality, generous capital allowances and a more favourable calculus for investments and refurbishments. 

On the other, higher taxes on dividends, weaker macroeconomic growth, expected lower consumer spending and squeezed returns on capital create headwinds that must not be ignored.

For 2026, I expect moderate, selective growth favouring lean, efficient franchise models in value and convenience sectors rather than a broad boom. Some consolidation is likely and only the most disciplined, cost savvy operators will thrive.

How the 2025 Budget Affects Recruiting New Franchisees in 2026 and beyond. 

The 2025 Budget has a direct knock-on effect on franchise recruitment. Some measures make franchising more attractive for potential buyers, while others create friction, especially for people on the fence or those relying on financing.

1. Lower Business Rates Make Entry More Appealing – Especially for First Timers

For many prospective franchisees, the biggest fear isn’t the franchise fee, it’s the ongoing operational costs once they open the doors.

By permanently lowering business rates for retail, hospitality and leisure premises, the Budget makes entry into these sectors less risky.

This helps recruitment in several ways:

  • The projected monthly overhead becomes lower and more predictable.
  • Breakeven timelines shorten, which is a huge selling point for anyone comparing franchise options.
    Locations that were previously borderline (small towns, secondary high streets, mixed-use estates) now become viable giving franchisors more territory to offer.

Franchisors can now position their opportunity as more affordable to run, which increases the pool of qualified applicants.

2. But Higher Dividend Tax Reduces the Appeal for “Investor-Type” Franchisees

The Budget’s 2 point increase on dividend income from April 2026 hits a specific group hard, semi passive or multi-unit franchise investors who rely on dividends for their returns.

This category is vital for network scaling they fund rapid store openings and often turn one successful site into 5 or 10.

The dividend tax rise means:

  • lower net returns
  • longer payback periods
  • weaker justification for buying multiple units
  • cooled appetite from people who evaluate opportunities like investments rather than jobs

Expect slower recruitment among high capital buyers unless brands restructure returns or emphasise long-term value over short-term yield.

3. Fiscal Drag Shrinks Disposable Income – Reducing the Number of People Who Can Afford to Buy a Franchise

With income tax thresholds frozen, more people drift into higher tax bands as wages rise.

For many white collar professionals who make ideal franchisees, managers, mid-career skilled workers, corporate leavers this means:

  • less take home income
  • less available savings
  • fewer people able or willing to fund a franchise purchase
  • tighter household budgets, reducing appetite for risk

Franchises that require an investment of £20k–£40k (plus working capital) may feel this most.

Recruitment for medium tier opportunities may slow unless brands offer financing schemes, staged investment plans, or lower initial fees.

4. Financing Becomes Harder – Impacting Recruitment for Higher Cost Franchises

The OBR forecasts weaker real returns and slower business investment. Pair that with sustained high interest rate levels and you get:

  • tougher bank lending criteria
  • higher borrowing costs
  • reduced approval rates for new franchise applicants

This creates friction for potential franchisees who rely on loans instead of cash reserves.

Franchises with build outs costing £150k–£500k, gyms, casual dining, large-format retail will see slower recruitment simply because far fewer prospects can raise the capital.

Expect franchisors in these sectors to:

  • push partnerships with lenders
  • introduce internal financing programmes
  • offer shared-ownership or management-franchise models
  • reduce fit-out requirements
  • lower fees to keep recruitment moving

5. Stronger Appeal for “Value-Sector” Franchise Opportunities

The Budget shifts consumer behaviour toward affordable, essential and value based spending.

This has a knock on effect for recruiting new franchisees:

  • Prospects are more attracted to franchises with low operating costs and stable customer demand.
  • Budget brands in retail, QSR, convenience and services look safer and more predictable.
  • High-end or discretionary franchises look riskier because they rely on strong consumer confidence.

Expect more recruitment traction for:

  • convenience store franchises
  • budget gym brands
  • fast casual/value food
  • mobile service franchises with low overhead
    repeat-service businesses (cleaning, care, pets, repairs)

The Budget effectively pushes recruitment toward low cost, high volume, essential-service franchises.

6. Rise of “Career Switchers” – But With More Caution Than Before

Economic pressure can push people to leave corporate roles and buy a franchise.

But fiscal drag and rising taxes make these career-switchers more cautious. They will:

  • scrutinise unit level financials more heavily
  • ask about recession resilience
  • expect territory protection and clearer profitability data
  • negotiate harder on fees, royalties, and support packages

Recruitment conversations will become longer and more detailed. “Impulse” franchise buys will be less common.

Brands that provide transparent data, honest risk assessments and strong training/support packages will convert more leads.

7. Recruitment Costs Will Rise for Franchisors

With fewer ready to buy candidates and more cautious buyers, franchisors should expect:

  • more leads that don’t convert
  • higher marketing costs per recruitment
  • longer sales cycles
  • more need for education-based content (webinars, case studies, ROI breakdowns)
  • stronger reliance on Discovery Days to qualify serious prospects

The upside?

Franchisors who refine their recruitment process and offer strong financial clarity will stand out as weaker brands fall off.

Bottom Line: Recruitment Will Be Tougher – But Also Higher Quality

The 2025 Budget doesn’t kill franchise recruitment, but it fundamentally reshapes it.

Easier recruitment for:

  • value driven franchises
  • essential service sectors
  • low cost and mobile franchise models
  • brands benefiting from business rate relief
  • concepts with lean staffing and low overhead

Harder recruitment for:

  • high investment, high capex franchises
  • premium/luxury offerings
  • brands relying on investor type multi-unit buyers
  • franchises with slow payback periods

Overall, the Budget squeezes disposable income, raises tax on returns and dampens investor appetite so franchise recruitment becomes more selective, slower and more data driven.

But it also strengthens growth in the value, convenience and essential service sectors, which is where most of the 2026 franchise recruitment momentum is likely to come from.