Business Rates Reforms Positive, But Maximum Discount Still Needed At Budget

HM Treasury has published a report today (11 September) setting out that the Chancellor will explore fixing sudden jumps in business rates – known as “cliff edges” – that can discourage small business investment and growth. This is one option in the business rates interim report.

Currently when a business opens a second property, they lose access to all Small Business Rates Relief (SBRR), holding businesses back from expanding.

That means that a local bakery would have to pay thousands of pounds more for opening a small shop in the next village. The report confirms that the government will review how SBRR can support business growth, potentially lifting growth and living standards in the future for those who work in these small businesses.

The report comes as the Chancellor sets out her intentions to go further on legislation to cut red tape and deregulation to drive growth.

This week the Chancellor issued a letter to cabinet ministers stressing the importance of government taking action to reduce inflation and reduce the cost of living, keeping a tight control of public spending through the non-negotiable fiscal rules and go further in kickstarting economic growth for all parts of the country.

Chancellor of the Exchequer, Rachel Reeves, said:
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 We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape.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.

As announced at Autumn Budget 2024, from April 2026, there will be permanently lower tax rates for retail, hospitality and leisure properties – including shops, pubs, and restaurants. Full details will be announced at the Budget on 26 November 2025.

In the meantime, the government is already helping small businesses by:

• Giving 250,000 retail, hospitality and leisure businesses, including shops, pubs and restaurants, 40% off their business rates.
• Freezing the small business multiplier to protect against inflation.

The government will also consider other ways to improve support for businesses that invest in their premises, and to make the business rates system easier to engage with, especially following the merger of the Valuation Office Agency with HMRC. Options being considered are changing the way the tax is calculated to minimise cliff-edges and enhancing Improvement Relief. The government will provide a further update at the Budget.

The government will be conducting further engagement with stakeholders about these options to improve the system.

Business groups have welcomed the changes, saying they will help small firms invest, create jobs, and grow.

UKHospitality has said these proposals are ‘positive’ and will help to rebalance the system, but reinforced the critical need for the Government to apply the maximum possible discount to the multiplier for all hospitality properties under £500,000 rateable value.

Legislation that passed this year, which UKHospitality was instrumental in securing, gives the Government the power to apply a discount to the multiplier of up to 20p in the pound.

Kate Nicholls, Chair of UKHospitality, said:
“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, following many years of campaigning from UKHospitality.

“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.

“Applying the maximum possible discount to the multiplier for all hospitality properties under £500,000 rateable value at the Budget in November is critical. That is the most significant and meaningful benefit that can come from these reforms, particularly with anticipated increases in rateable values coming into effect next April.

“The maximum discount should be introduced alongside a zero rate for hospitality properties over £500,000 rateable value, to ensure the reform is in keeping with the Government’s intention to level the playing field for the entire high street.

“We are pleased that the Government has recognised the harm that large increases in rateable values will cause to hospitality and has committed to transitional relief. This needs to be meaningful and consider the effect of existing cliff edges.

“With hospitality businesses finding themselves taxed out as a result of cost increase after cost increase, lowering business rates, fixing NICs and cutting VAT is the action we need to see the Government take at the Budget.”