Government hints at ‘fundamental change’ for business rates in interim report

The report was published following consultation with retailers and hospitality businesses and sets out the government’s response ahead of the Budget on November 26.

It said that while business rates are a “longstanding feature” of the UK tax system and are “less distortionary” than other taxes, it “is clear that current features of the business rates system act as barriers to business investment”.

The government said it was “determined to remove those barriers and to encourage greater investment and growth”. It set out proposals it would take forward, including moving to a marginal tax rate system of bands.

It also said it would review how the small business rates relief system can better support businesses and will consider how improvement relief could be enhanced with better data.

The government said it would deliver a transitional relief package for the 2026 revaluation to support those seeing large increases and has ruled out increases to revaluation frequency.

At the Budget, the government will confirm the rates for its permanently lower tax rates for small properties with a rateable value of below £500,000 from April 2026.

Retail industry responds 

British Retail Consortium chief executive Helen Dickinson said: “The business rates system is outdated, overly complex and economically damaging. This report offers a useful blueprint of various areas to be explored further that could help the business rates system function more effectively. Retailers will appreciate the government considering how improvement relief can be enhanced, as well as considering how the functions of the Valuation Office Agency can be delivered effectively by HMRC.

“But for retail businesses, the most pressing question is how the government’s plan for a permanent business rates reduction for retail, hospitality and leisure premises will be implemented? Currently, retailers account for 5% of the economy yet pay over 20% of the total business rates bill, which is why such reforms are desperately needed. Until we get clarity on these changes, which isn’t expected until the Budget, many local investments in jobs and stores are being held back.”

Association of Convenience Stores chief executive James Lowman said: “It’s encouraging to see the chancellor talking about reform of the business rates system to encourage growth, aligning with many of the measures that we’ve asked for to support local shops. 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 with some level of certainty at a time when they’re staring down the barrel of increases as a result of the incoming rates revaluation.”