What the Budget shows us about Labour’s attitude to business rates

The October Budget was a massive disappointment to anyone hopeful  that Labour would introduce proper business rates reform and contradicted all their pre-election pledges of overhauling the system and “saving the high street.”

The chancellor said she was heading off the knife edge that the retail/hospitality/leisure sectors might face when the 75% discount relief they currently enjoy comes to an end in April 2025. However, by replacing it with a 40% business rates relief capped at £110,000, she has inflicted a 140% increase in rates bills for 250,000 retail, hospitality and leisure ratepayers who currently receive this relief.

And although the small business multiplier is frozen at 49.9p for 2025/26, the standard multiplier will increase with inflation to 55.5p. Far from rebasing the multiplier to something businesses can afford, medium and larger companies are facing a tax nearer to 60p in the £ than 50p, let alone the 34p we’ve been campaigning for.

The chancellor did say she’d be introducing two lower multiplier tax rates for businesses in the retail, hospitality and leisure sectors from 2026/7. However, many businesses in the sector will see their rateable values rise significantly because of the 2026 revaluation, resulting in higher bills and cancelling the advantages from the lower multipliers.

And while we agree there should be lower multipliers for retailers and hospitality businesses, we still believe there should be lower multipliers for all businesses to help UK plc be more competitive.

This does not look likely. It is clear that together with freezing the smaller business rates multiplier, these additional lower multipliers will be funded by introducing an even higher multiplier for larger businesses (those with an RV of over £500,000.) This will include businesses in the retail, hospitality and leisure sectors too, as well as the distribution warehouses that so many of them use.

This means the bigger businesses, the ones that actually create employment, will be “hit for six”. No wonder many of them are making their voices heard in protest at these changes. A number of businesses in the retail and hospitality sector are getting together to ask the chancellor to think again about the planned tax increases.

Worse, these punitive rises will come on top of other Budget measures introduced that will impact the sector and increase costs, namely the increase in employer national insurance contributions and rise in the minimum living wage. These costs will inevitably feed through to the consumer – so we fail to see how any of these measures will help the high street in the longer term.

Of course the government is saying it is looking at reform, and has published a discussion paper setting the direction of travel. However, this is not a formal consultation and looks to be tinkering with the current system rather than overhauling it. There is nothing contained within it that looks at the level of the multiplier, for example.

Labour’s policy of tinkering rather than roots and branch reform is further borne out by looking at the OBR figures. According to the OBR, business rates are forecast to raise £32.1bn in 2024/25, £34bn in 2025/26, rising to £37.4bn in 2026/27 and ultimately growing to a massive £39.8bn by 2029/30.

There is therefore nothing indicating the government is considering reducing the burden of this inequitable tax, if it is still expecting to raise nearly £40bn from it by the end of the decade. We wonder how many businesses will go the wall in the meantime.

So, all in all, we are very disappointed. Labour had 14 years in opposition to formulate a plan and their election victory in July gave them an overwhelming mandate to make a difference and introduce proper reform. Sadly, it looks like the civil servants at the Treasury have got to them first and any ambitious plans, if they had them, have been watered down.

Colliers will be responding to the discussion document on behalf of our clients, but this is not anything resembling meaningful reform – sadly it’s just more of the same!

John Webber is head of business rates at Colliers