Is Pub Tax Relief Too Highly Rated?

By Colin Johnson, partner at MHA (www.mha.co.uk)

The UK government’s proposed watering down of the planned business rates rise for pubs follows a turbulent period for hospitality taxation, one that highlights both the complexity of the rating system, and the political pressures that come from reform.

Since the COVID-19 pandemic, the business rates system has been in a state of flux for hospitality businesses. Temporary measures such as the transitional relief and Retail, Hospitality and Leisure (RHL) relief were introduced during the pandemic to support struggling restaurants, pubs and similar venues. The transitional relief eased the immediate impact of ratable value changes from periodic revaluations, spreading the increase over several years. Alongside this came the broader RHL relief, originally a 75% reduction, and now a 40% reduction in 2025-26, subject to a £110,000 cash cap per business. This was designed to soften bills for retail and hospitality businesses.

While the new 15% targeted relief offers pubs some welcome stability, the broader hospitality picture remains challenging, particularly for restaurants, hotels and mixed-use venues, which continue to face steep business rates pressures despite operating under similar economic constraints.

Recent government and industry analysis shows that although pubs benefit from a bespoke rate reduction, other hospitality segments face significantly higher increases. UKHospitality’s post-Budget analysis highlights that the average hotel will see its business rates bill rise by £28,900 next year, reaching an extra £111,300 by 2028/29, a cumulative increase of £205,200 over three years. This divergence has amplified concerns about fairness across the sector, especially as many restaurants and hotels are still adapting to rising wage, energy and borrowing costs.

Similarly, while restaurants fall within the wider Retail, Hospitality & Leisure (RHL) framework, many will not benefit from the pub-specific relief. These businesses instead rely on the new permanent RHL multipliers from April 2026, set 5p below national rates, replacing the temporary 40% relief and reducing some uncertainty but not fully mitigating the cost burden for many operators.

In contrast, the government estimates that eligible pubs will save an average of £1,650 each under the new 15% relief applied from April 2026, with bills then frozen in real terms for a further two years. Around three-quarters of pubs will see their rates either fall or stay the same, offering stability that is not universally extended to the rest of hospitality.

The contrast between these outcomes underscores the sector’s growing frustration. Trade bodies have warned that hotels, restaurants and multi-use venues, many of which share the same pressures as pubs, remain exposed to sharp cost escalations without equivalent targeted support. As a result, lobbying across the wider hospitality industry is expected to intensify throughout 2026 as operators seek a more equitable approach before the changes fully take effect.

The business rates landscape has moved significantly with the 2026 revaluation of ratable values.

These valuations determine how much a property is judged to be worth for tax purposes, and for many hospitality properties (especially pubs in urban locations), they have climbed steeply. Combined with ending transitional relief for hospitality, and the transition towards permanently lower RHL multipliers, many hospitality businesses were facing sharp increases in their bills. This ‘cliff-edge’ situation prompted widespread concern across the sector based around future viability.

As the planned increases became clearer, significant levels of lobbying emerged from the sector. Pubs and hospitality bodies warned of closures and job losses, with many smaller operators assessing the impact as severe. Across political and industry forums, the UK government was criticised for not fully appreciating the economic and community value of pubs and hospitality.

In response, the government announced concessions targeted at pubs and live music venues. Under the new support package, eligible pubs will receive a 15% business rates relief on their bills for 2026-27, on top of the existing support announced during the Budget of 2025. Their bills remain frozen in real terms for a further two years. Approximately 75% of pubs are expected to see bills stay the same or fall in 2026-27 versus 2025-26, and the government claims the sector as a whole will pay circa 8% less in business rates by 2029 than under the previous trajectory.

However, the relief is narrowly defined and open to interpretation. The criteria for what constitute a pub is specific: the property must be open to the public, permit free entry aside from occasional entertainment, allow drinks to be purchased at a bar, and not require food to be consumed.

Explicit exclusions include restaurants, cafes, nightclubs, hotels, guesthouses, and other venues. Where eligibility is unclear, local authorities are tasked with making the determination, which means there could be local variations in the way the definition is applied.

The narrow definition raises deeper issues because many hospitality businesses have diversified in recent years, blurring traditional lines between pubs, restaurants, cafes, and bars. Under financial pressures, establishments often combine food, drinks, events, and other services, making it harder to draw a clear distinction. There is a long-standing history of challenges in business rates, with ratepayers and authorities frequently disputing whether a property fits a particular category, and the new targeted relief risks adding further confusion about who qualifies, and who does not. Businesses that have added food or entertainment to drive revenue may find themselves excluded, even if their operating model remains close to that of a traditional pub.

There is also the question of fairness across the hospitality sector. While targeted support recognises the cultural importance of pubs, it leaves other parts of the sector, such as restaurants, hotels, cafes, and some leisure venues, still facing significant cost pressures. With rising energy costs, workforce shortages, and subdued consumer demand affecting the entire industry, singling out one segment for relief can feel arbitrary and unfair, especially when many hospitality businesses face similar threat profiles. This has led to claims that the government does not fully understand the economic value they deliver and leaves them bracing for increased bills without relief.

For businesses falling outside the new pub definition, the recent concessions may feel insufficient. Restaurants, bars, and mixed v enues that do not fit the criteria could be left without targeted relief, even as they face similar cost and business pressures.

For these businesses, lobbying trade bodies, local members of Parliament, as well as the formation of sector alliances will remain an important strategy. We anticipate an increase in concern amongst, and pressure from, these venues for reconsideration before the changes fully take effect in April 2026.