Unlock Editor’s Digest for free
Roula Khalaf, FT Editor, picks her favorite stories in this weekly newsletter.
British companies face a stealth tax increase of £900 million next year and up to £2.7 billion in 2026 through higher business rates, despite Labor’s manifesto pledge not to increase the amount of cash collected by the levy.
Business rates paid by thousands of shops, pubs and restaurants will more than double next year thanks to long-awaited relief from ministers, according to calculations from property research group Altus Group.
Support for retail and hospitality firms through business rates will fall from the Treasury’s estimated £2.65bn this year to £1.7bn next year and then zero next year, according to documents published during last month’s Budget.
The government has promised to review business rates in 2026 which could see the sector face lower rates permanently, which could make calculations about the long-term impact on the industry.
However, the opposition Conservative party accused the Labor government of “raising business rates” ahead of the second reading in parliament on Monday of the “Non-Domestic Ratings Bill”, which deals with business rates.
The Tories said the changes would increase pressure on companies already facing a £25bn rise in annual National Insurance employer contributions, a higher minimum wage and a package of workers’ rights.
The Labor Party explicitly said in its manifesto that it will review the business rate system “so that we can raise the same revenue but in a fairer way”.
But in the Budget on 30 October, chancellor Rachel Reeves reduced previous rate relief for the retail and hospitality sectors, meaning a £900m increase in overall business rate payments next year and then a further £1.8bn in 2026.
Reeves announced in his Budget speech that there would be 40 per cent business rate relief for the retail, hospitality and leisure sectors for 2025-26 through discretionary local discounts.
This is lower than the previous 75 per cent business rate imposed by the sector under the Conservative government, which expires from April 2025.
It means support for retail and hospitality companies with business rates will drop from the Treasury by about £2.65bn to £1.7bn next year and then zero the following year – effectively raising £2.65bn without further government action.
Altus Group said the cut from 75 per cent to 40 per cent in April would mean an average increase of 140 per cent in business rate bills for more than 250,000 high-rise premises in the UK.
He said the average shop would now see its business rate bill rise from £3,589 to £8,613 in April. Restaurants will see their average bill rise from £5,051 to £12,122.
A spokesman for the British Beer and Pub Association said the cut in relief from April from 75 per cent to 40 per cent meant the sector would face “more costs”.
The Conservative government is offering relief at various levels between 50 and 75 percent as an emergency measure during the pandemic and cost of living crisis.
The industry expects this to dissipate under more “normal” trading conditions.
Andrew Griffith, the shadow business secretary, said: “These punitive changes come on top of a £25bn National Insurance attack, higher inflation and a union-inspired labor bill. Labor has done everything to create an anti-business environment .
The situation is complicated as ministers introduce further changes to the way the business rates system works from 2026.
As a result of legislation currently passing through parliament, future relief for the retail, hospitality and leisure sectors will come from new surcharges on large venues, rather than from central government funding.
Alex Probyn, president of property tax at Altus Group, said that although Labor promised to reduce the burden of business rates, the burden will actually increase next year.
“From 2026 the discount will be borne by the 1 per cent of ratepayers with the biggest properties and not the Exchequer,” he said. “The biggest property doesn’t necessarily have the broadest shoulders.”
The UK Property Federation said it understood that next year’s 40 per cent relief would still be higher than the 33 per cent rate in 2019, when it was first introduced.
“The Government has promised to create a fairer and more sustainable business rates system but the proposed changes are really a case of robbing Peter to pay Paul,” said Ion Fletcher, director of policy at the BPF.
“What we need is a fundamental reform that removes the tax rate from inflation, introduces an annual revaluation . . . and a long-term plan to reduce the overall property tax rate, to a level that is more competitive with international peers.
A spokesman for HM Treasury said: “The relief is temporary, with business rates returning to normal in April next year.
“However, the action this government has taken gives 40% relief to 250,000 properties, and from 2026 we will permanently reduce business rates for retail, hospitality and leisure businesses for the first time.”
