Fixing sudden jumps in business rates when a business opens a second property are among the business rates reforms being considered by the government.
Publishing a business rates interim report following consultation with business groups and others, the Treasury said it will look at fixing “cliff edges” that can discourage small business investment and growth.
Currently when a business opens a second property, they lose access to all small business rates relief (SBRR). The report said the government will look at reforming SBRR to better support business growth.
The report also said that the government considers there to be a case to explore a
change from a ‘slab’ to a ‘slice’ system of business rates. Ministers will explore how moving to a marginal tax rate system, where successive bands are taxed at increasing rates, may be beneficial for businesses.
In the 2024 Autumn Budget, the government already announced that from April 2026, there will be permanently lower tax rates for retail, hospitality and leisure properties. Full details will be announced at the 2025 Autumn Budget on 26 November.
Chancellor Rachel Reeves said:
“Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission. We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape.
“Tax reforms such as tackling cliff-edges in business rates and making reliefs fairer are vital to driving growth. We want to help small businesses expand to new premises and building an economy that works for, and rewards working people.”
Call for business rates reform
Business groups have been strong in their call for fundamental reform of business rates.
Official government figures showed 209 pubs were demolished or converted for other uses during the six months to June, which means that 2,283 pubs have shut down for good in England and Wales forever since the start of 2020.
A survey of hospitality businesses by UKHospitality found that a third are operating at a loss, 76% have had to increase prices, 63% have reduced the hours available to staff, a third are restricting opening hours, and 40% have reduced investment.
Several business groups welcomed the announcement on business rates reform.
Tina McKenzie, policy chair at the Federation of Small Businesses, said:
“It’s incredibly welcome that the chancellor has recently taken the powers she needs to improve the system for small firms and the high streets while keeping within her fiscal rules. Of course, the proof will be in the pudding at Budget – but we very much hope that ministers deliver a big result for small firms.”
Aaron Asadi, CEO of Enterprise Nation, said:
“Getting that second shop – that second set of keys – has for too long been too hard. The recommendations set out in today’s interim report are the kind of changes small businesses have been calling for. Current business rates have too often acted as a barrier to investment and growth.
“Our 145,000-strong community of founders and freelancers need stability, predictability and plain-English clarity on their bills. If these reforms are delivered well, they could give small businesses the confidence to invest, expand and revitalise high streets across the UK.”
Other groups called for the chancellor to go further.
Jonny Haseldine, head of business environment policy at British Chambers of Commerce, said:
“The reality remains that these are tweaks around the edges of a business bates system that is still fundamentally flawed.
“It causes an unnecessarily large burden on businesses regardless of their ability to pay and does not make allowances for the significant structural changes that have taken place in the UK economy over the last decade.
“We need a permanently lower multiplier of 45p for all businesses by the end of this parliament, regardless of sector.
“Proposals for a higher multiplier for all properties with a rateable value over £500,000 also have the potential to introduce unintended consequences. It would impose significant added costs on a variety of larger hotels and hospitality firms, who wouldn’t then be eligible for the lower RHL multiplier.
“In the longer term, we need a system that encourages growth and investment. It must be more responsive to the local and wider economic cycles and allow greater investment back into the local areas where it is paid.””
Association of Convenience Store chief executive James Lowman said:
“Addressing the cliff edges on small business rate relief would mark a positive step forward, but with retail and hospitality relief likely coming to an end next year, there is more to do to ensure that retailers are not unnecessarily hampered by excessive rates bills.
“We continue to urge the chancellor to use the Budget to announce a full 20p reduction in the new permanent retail, hospitality and leisure multipliers, which will go a long way to providing businesses some level of certainty at a time when they’re staring down the barrel of increases as a result of the incoming rates revaluation.”
SME Web will be providing extensive coverage of the Autumn Budget on 26 November. If you’re a small business owner and you’d like to share what you think should be included in the chancellor’s announcement, email editor Dan Martin.