The chancellor of the exchequer Rachel Reeves has laid out the government's priorities as it seeks to push through a major overhaul of business rates, the tax levied on commercial properties.
Among the priorities outlined by the Treasury, the chancellor made clear government will explore fixing sudden jumps in business rates, known as “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, and Reeves said this is holding businesses back from expanding.
In the Interim Report published by the Treasury today the government said it was updating on responses to its "Transforming Business Rates" discussion paper, which was published at the Autumn 2024 Budget to kickstart a consultation aimed at designing improvements to the business rates system.
It says this is a multi-year process and it will now consider reforms to the system over the course of this Parliament, alongside the revaluation of properties in 2026 and 2029.
It said it has completed the first phase of engagement, which consisted of roundtables with over 250 attendees representing 230 organisations, and written submissions from over 140 stakeholders.
It has now summarised stakeholders’ views and is outlining the priority reforms it will consider over the course of this Parliament. There will be a further update at the Autumn Budget. It has set out key milestones for business rates reforms and the revaluation.
In particular, it will explore the case for transforming business rates from a "slab" to a "slice" approach, and for strengthening Small Business Rates Relief.
The priority areas being considered are:
- ‘Slab’ to ‘slice’ reform – exploring moving from the current tax structure where a single multiplier is paid on the full Rateable Value to a new structure based on marginal tax rates, where successive bands are taxed at increasing rates;
- Enhancing Small Business Rates Relief (SBRR) to support business growth and investment;
- Enhancing Improvement Relief once more data is available to establish how it is being used;
- Exploring stakeholder concerns over the ‘Receipts & Expenditure’ methodology and options to address these ahead of the 2029 revaluation;
- Exploring the possible benefits of shortening the Antecedent Valuation Date in the future;
- Using the merger of the Valuation Office Agency with HMRC to pursue administrative changes that help ratepayers.
The government said it will deliver a Transitional Relief package for the 2026 revaluation to support those seeing large RV increases. It says it understands the upcoming revaluation has been a source of uncertainty for businesses. The government is ruling out increases to revaluation frequency to provide businesses with certainty, it said. Revaluation frequency, although a commonly raised topic, did not have a strong consensus, government said, adding: "Although a slim majority supported the move to more frequent revaluations, this needs to be balanced against the legitimate concerns of a significant number of respondents." The government will explore the possible benefits of shortening the antecedent valuation date in the future.
Rachel Kelly, assistant policy director, British Property Federation, described the latest changes as feeling like "more tinkering rather the transformation government has pledged to deliver".
“In order to create a fairer and more sustainable system and support investment into our retail, leisure, and business space we need more frequent revaluations and an overall lower tax burden. Most urgently, we need Empty Property Relief reform back on the table for the Autumn Budget. We are currently facing a development viability crisis, and without urgent reform, EPR as it stands will continue to add risk and uncertainty to potential investments.”
Simon Green, partner and co-head of business rates, at Newmark, the recognition of flaws in the system is welcome, but today’s changes amount to tinkering at the edges, not the fundamental reform businesses need.
"Ratepayers have long called for a shorter gap between the 'AVD' (valuation date) and the revaluation date, yet the government has once again kicked the can down the road by only pledging to 'explore further'. Businesses now face an unnecessary wait until the end of November before they can forecast their 2026 liabilities, with multipliers and transitional relief left to the Autumn Budget and draft rateable values still not expected until then.
"At the heart of the issue is a tax burden that is simply too high. Unless multipliers are fundamentally reset, businesses will remain reluctant to invest in their sites."
Chancellor of the Exchequer, Rachel Reeves, said in a statement: "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."
Kate Nicholls, chair of UKHospitality, said in the government's release: "For too long, the broken business rates system has unfairly punished hospitality businesses and I’m pleased that the government is taking action to reform it. These measures to remove punitive cliff-edges and barriers to investment are positive and will help to rebalance the system, as will the government’s commitment to lower business rates bills for hospitality businesses."
Shirine Khoury-Haq, Co-op Group chief executive, said in the same release: "Small, local shops are the lifeblood of communities. Today’s announcement on business rates reform is a welcome step forward, and we fully support the changes which will enable small and medium sized retail, hospitality and leisure businesses to invest, drive growth, and better serve their local communities."
Mark Tan, tax partner at law firm Spencer West, said in a statement: “Business rates are often described as one of the most burdensome taxes for small firms, so a review is long overdue. The way relief is withdrawn at a cliff-edge for example, when a small business opens a second shop or office can mean an overnight jump in costs that discourages expansion. Looking at ways to smooth this is a welcome step, but it’s not yet clear whether the reforms will genuinely remove that barrier or just make a modest tweak.
"If relief is tapered, some firms will gain, but others (such as those currently paying nothing) could start facing bills for the first time. And even if cliff-edges are fixed, high street businesses will still face heavier costs than online rivals with little physical presence.
"That said, it is encouraging to see the Treasury take this seriously. If the review can deliver a fairer and more predictable system, it would give small businesses greater confidence to grow, and that’s exactly what the economy needs.”
This story will be updated with industry reaction.