Chancellor of the Exchequer Rachel Reeves will exclude supermarkets and large retailers from paying the top band of business rates, after warnings that proposals will spark higher food inflation, according to the Financial Times.
FT reports that officials have briefed it that large retail premises will be removed from the highest bracket of the property levy following strong lobbying from the industry. It says officials added a final decision had not been taken and that discussions were still live ahead of the Budget in November.
The government announced in September it would introduce permanently lower multipliers for retail, hospitality and leisure businesses that have a rateable value of under £500,000 from April 2026-27 and fund this with a higher multiplier on properties with a value of over £500,000. It has said the rates for the new multipliers will be announced at Budget 2025, taking account of the revaluation due in 2026, as well as the economic and fiscal context.
The Treasury argues the new rates system would affect only the top 1% of properties and would level the playing field with online retail giants such as Amazon by capturing large distribution warehouses. But large retailers and supermarkets have argued the move would make stores unprofitable, particularly when added to the government's move to hike employer national insurance contributions.
The British Retail Consortium has said up to 400 stores, including larger department stores, could shut if the higher rate is applied and has been urging Chancellor Reeves to exempt large retail stores from the higher rate, while at the same time increasing the additional levy for other properties such as offices to fund the small premises discount.
Business rates bills are applied according to the value of a premises and a multiplier rate set each year by the government.
John Webber, head of business rates at Colliers, who has long been a critic of the proposed higher multiplier, said: “We applaud the U-turn on food stores being hit with a 20% business rates premium because it will add to food inflation, but it rather begs the question why is the government not accepting that adding a 20% supplement to any business is inflationary? It feels like those who shout loudest get listened to, rather than the government pursuing any considered strategy. If it had carried out an impact study at the outset it would not be now rowing back on a policy which will do nothing to level the playing field in the high street.”
Alex Probyn, Practice Leader of Property Tax (Europe & Asia-Pacific) at global tax firm Ryan said: “Talk of exempting large retailers from the business rates supplement would be a welcome sign that the government is listening. But the reality is this proposal has always been a blunt instrument. It goes far beyond retail and risks dragging thousands of large premises into a new tax regime simply to fund discounts for others.
"Our analysis has shown consistently that this approach does not just hit supermarkets or the largest stores — it sweeps in corporate headquarters, distribution centres nothing to do with online retail as well as large manufacturing sites, all of which are vital to business operations and the wider economy. The idea that these premises automatically have the broadest shoulders to bear the extra burden is flawed.
"Rather than correcting one mistake, ministers need to step back and ensure any reform is properly thought through. Shifting the tax burden around the economy in this way doesn’t address the fundamental problem — that business rates remain disproportionately high compared with international property taxes.”
Cara Imbrailo, Partner, Charles Russell Speechlys, said: “‘The Treasury’s move to exempt larger shops from the top rate of business rates will be a welcome relief and follows industry warnings that higher rates could otherwise have triggered widespread store closures, job losses and further risks of food inflation.
"It remains to be seen whether all shops will benefit, or whether physical store size will be a deciding factor, but this is a positive step that shows government has listened to industry concerns.
"Physical retail plays a vital role in sustaining healthy communities, providing essential goods and services, creating jobs, supporting local economies and fostering social interaction. With many retailers already operating on tight margins, continued government support will be key to ensuring high streets remain vibrant and resilient.”