The Labour Government has been accused of making a “stealth” £1.5billion hike in business rates. Chancellor John Healey announced in the Budget on Wednesday that he would increase the threshold for 100% small business rates relief for hard-hit retail and hospitality firms from £12,000 to £18,000, with tapered relief from £21,000, up from £15,000.
He said this would mean an extra 70,000 firms taken out of paying business rates altogether. A further 3,500 pubs, 3,900 restaurants, 2,200 cafes and 1,700 hairdressers and beauty salons will be exempted from paying business rates, according to the Treasury.
Funding through a temporary charge
The plan is to hit gambling firms with more tax hikes and launch an online sales tax crackdown to pay for the business rates relief. Analysis of Government documents by the FT and tax firm Ryan, not seen by the Daily Express, reportedly shows the perk is mainly going to be funded through a two-year extension to a temporary business rate charge.
That charge will also affect retail, hospitality and leisure, according to the analysis. A business rates bill supplement unveiled by Mr Healey's predecessor, Rachel Reeves, added £1 to every £100 of a premises' rateable value – which is used to estimate a firm's annual rent and calculate how much it should pay.
Extension generates £1.5billion
The supplement was supposed to continue for one year from April 2026, but Budget documents show the Chancellor has extended it for two more years. Extending the supplement will generate £1.5billion, according to the FT.
Alex Probyn, Practice Leader, Property Tax, Europe and Asia-Pacific at global tax firm Ryan, said: “This is a stealth tax rise for businesses which had every reason to expect this additional cost to disappear next April.” He told the FT businesses cannot plan with confidence if the Government moves the end date beyond its previous commitments.
Industry reaction
Helen Dickinson, Chief Executive of the British Retail Consortium, said: “This was a smoke and mirrors announcement on business rates. The Chancellor’s headline announcement that he will 'freeze [retail, hospitality and leisure] rates in real terms' means a 3.5% increase - another body blow to high streets already struggling with rising costs and empty units. It will add around £250million to retailers’ bills next April as one in seven shops lies empty. And while we welcome the decision to remove 70,000 small high street businesses from paying business rates altogether, the overwhelming proportion of employment and rates come from the 500,000 medium and larger retail outlets whose bills will go up once again. Retail accounts for around 5% of the economy yet pays over 20% of business rates. Increasing retail’s burden means less money for investment in jobs, stores and keeping prices down.”
