We need business rates reform soon to save high street, say bosses

Amid the backlash from the retail and hospitality industries over mounting employment costs in the budget business leaders are calling for the Treasury to rethink and accelerate reform of the business rates system, which dates back to the Poor Laws of 1601.
With previous governments accused of only “tinkering around the edges”, Sir Keir Starmer’s administration has vowed to create a “fairer system” that protects the high street, boosts investment and is “fit for the 21st century”.
The importance of the issue has been underlined by the new business select committee in the Commons, which is planning an inquiry into the “Great British high street” — the most popular concern among canvassed MPs.
Labour’s manifesto pledged to replace the business rates system by raising the “same revenue but in a fairer way” to “level the playing field” between the high street and huge online companies and to tackle the scourge of empty properties. The chancellor Rachel Reeves announced the “first step” in the budget in October.
However, with Reeves also outlining a rise in both employers’ national insurance contributions and the minimum wage, adding up to £5 billion a year to the retail industry’s costs, and forecasts that the overall burden will rise rather than fall, business leaders are stepping up a lobby to force greater concessions from No 11.
The business rates system, forecast to raise £26 billion in England this year, is a property tax charged on most commercial properties, including shops, offices, warehouses and factories.
It is calculated based on the rateable value of a property, which reflects the rental value on the open market at a set date as assessed by the Valuation Office Agency, part of HM Revenue & Customs.
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Businesses pay a percentage of this value based on a tax rate known as the multiplier. Between revaluations, which happen every three years, rates are adjusted annually according to inflation.
Business rates are favoured by the Treasury for their easy collection and are a stable source of revenue for local councils. The tax makes up a quarter of local authority core spending power. However, property-intensive sectors, such as high street retail and pub and restaurant chains, have long complained that they bear the brunt.
Helen Dickinson, 58, chief executive of the British Retail Consortium (BRC), whose members include the UK’s biggest chains, has argued that the industry has been the “golden goose” that generates tax revenues “far beyond” its size. The retail and hospitality industries contribute more than one third of all business rates, while accounting for 9 per cent of the economy.
With more than three million people directly employed, the retail industry is the “lifeblood” of local communities, according to Simon Roberts, 53, chief executive of Sainsbury’s.
Ecommerce has piled pressure on bricks and mortar retailers over the past decade, with online sales tripling to make up 27 per cent of total retail sales last year. It has meant that hospitality chains play a greater role in attracting shoppers to high streets.
The “outmoded” rates system, from an era when most shopping was done in stores, is considered the “No 1 barrier” to growth in the retail industry.
The UK has been losing shops at a rate of more than 1,000 a year, with most citing rates as a key reason for closure, according to the BRC. A further 17,000 could close over the next decade “without action”, a survey by the consultancy Development Economics found.
Carl Cowling, 51, chief executive of WH Smith, said: “Anything that brings back a bit of life to UK high streets is really important.”
Since the pandemic sent the sector into crisis, a one-year retail, hospitality and leisure relief has been repeatedly rolled over as a temporary stopgap to reform. However, it has meant uncertainty for business and “significant” fiscal pressure on the Treasury.
In her budget speech, Reeves acknowledged that business rates were a “major source of concern”. From 2026-27, she pledged to introduce two permanently lower tax rates for retail, hospitality and leisure properties, “which make up the backbone of high streets across the country”, with rateable values below £500,000.
The biggest cut will be targeted at those paying the small business multiplier, with a rateable value of less than £51,000. Those paying the standard multiplier, with a rateable value between £51,000 and £500,000, will also benefit, according to the Treasury.
The new lower tax rates will be “sustainably” funded by a higher multiplier to all properties above £500,000. It will capture the majority of large distribution warehouses, “including those used by online giants”, the Treasury’s discussion paper stated. The government is “asking those who can contribute more to play a role in supporting the high street”.
In the interim, in the next financial year, the relief scheme will be extended for another year but at a reduced level of 40 per cent, down from 75 per cent, up to a cap of £110,000 per business. The small business multiplier will also be frozen next year.
As the system “cannot be transformed overnight”, the government is also vowing to “co-design” longer-term reforms in partnership with business. This includes an assessment of shortening the gap between the valuation date of property and those valuations coming into effect, as well as increasing the frequency of revaluations.
When asked how to fix the system, Ryan McDonnell, 47, chief executive of Lidl GB, the German discounter’s British arm, which is expanding its shop portfolio, said: “There is no simple answer.”
Nonetheless, the BRC is deeply unsatisfied with the government’s proposed reforms. Writing to Reeves this week, the bosses of more than 80 large retailers, including Tesco, John Lewis and Next, raised concerns that the plans “merely redistribute rates within the industry and would see many retailers’ bills significantly increase”.
The lobby group is concerned that the proposed changes from 2026 could “punish” larger stores that “play a key role in attracting footfall” to high streets and that the relief next year for small businesses is a “significant decrease”.
George Weston, 60, chief executive of Associated British Foods, the owner of Primark, said the changes “penalised” shops that anchor high streets. He added: “We’ve been hoping for a rebalancing between the tax burden placed on online and physical retailers for years and years. We haven’t seen it yet.”
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In an earlier letter to Reeves before the budget, the leaders called for a headline 20 per cent cut to rates bills for retail properties of all sizes in all locations: a “retail rates corrector”.
The corrector would, it is argued, “safeguard and create” more than 17,000 jobs and deliver an extra £70 million per year to the Treasury after ten years.
Alex Baldock, 54, chief executive of Currys, said: “They’ve chosen not to act on it and that’s a missed opportunity, which is disappointing.”
UKHospitality, the lobby group for pubs and restaurants, whose members include Malmaison Hotels and Imperial London Hotels, is calling for a new lower, permanent and universal multiplier. The group said if it “cannot be delivered, it’s important that reliefs are rolled over and are uncapped”.
The Treasury was approached for comment.