Business Rates Reform: A New Landscape for Retailers in the UK

Table of Contents

1. Key Highlights
2. Introduction
3. The Reform: Key Features and Objectives
4. Implications for Smaller Retailers
5. The Burden on Larger Retailers
6. The Uneven Playing Field
7. Will the Reform Help the Sector?
8. Conclusion
9. FAQ

Key Highlights

• The UK government has announced reforms to business rates that will introduce lower multipliers for properties valued under £500,000, while increasing rates for those above this threshold.
• Over 280,000 retail, hospitality, and leisure properties are expected to benefit from these changes, but experts warn that the overall impact may be limited for smaller retailers.
• Larger retailers face significant increases in their business rates, which could lead to reduced investment and job creation in the sector.

Introduction

The landscape of retail in the UK is shifting as the government prepares to implement significant changes to business rates, a taxation system that has long been a contentious issue among retailers. As the retail sector grapples with the aftermath of the COVID-19 pandemic and the ongoing challenges posed by inflation and online competition, these reforms could represent a pivotal moment. But will they truly benefit smaller shops, or will they further burden larger retailers already struggling under rising costs?

According to recent reports, the new business rates system is set to go into effect in 2026, introducing a lower multiplier for properties with a rateable value (RV) under £500,000 while increasing the rates for those that exceed this threshold. This change aims to level the playing field for independent retailers while simultaneously addressing the financial pressures on larger establishments. However, while the intent is to stimulate growth and protect high streets, many within the industry remain skeptical about the actual outcomes of these reforms.

The Reform: Key Features and Objectives

The reform is designed to reshape the business rates landscape in the following ways:

• Lower Multipliers for Smaller Properties: Properties with a rateable value below £500,000 will see a reduction in their business rates multiplier, aimed at easing the financial burden on smaller retailers and encouraging local shopping.
• Increased Rates for Larger Retailers: Conversely, those properties valued above the £500,000 threshold will experience a hike in their rate multipliers, reflecting a growing sentiment that larger retailers should contribute more to the local economy.
• Permanent Changes: The government has committed to these changes being sustainable and permanent, suggesting a long-term strategy to support the high street and local businesses.

A Treasury spokesperson emphasized the government’s commitment to creating a "fairer business rates system" that protects high streets and supports investment. This reform is expected to benefit over 280,000 businesses in the retail, hospitality, and leisure sectors.

Implications for Smaller Retailers

As smaller retailers often operate with tighter margins, the promise of lower business rates could provide much-needed relief. However, experts like Jonathan De Mello, a retail property consultant, caution against overly optimistic interpretations of the reform's potential.

De Mello notes, "Smaller retailers will mostly continue as they have been. For independents, it will help, but it’s not going to make or break their business model." This sentiment is echoed by Jeff Moody, chief commercial officer of the British Independent Retailers Association (BIRA), who acknowledges the government’s focus on small business relief but highlights ongoing challenges.

In particular, the cut in the Retail, Hospitality and Leisure (RHL) discount from 75% to 40% poses a significant concern for independent retailers, as Moody warns that future increases in the lower multiplier could exacerbate existing pressures.

Real-World Examples

• Independent Shops: Many small businesses in town centers may benefit from reduced rates, potentially allowing them to invest in marketing or store improvements. However, for some, such as small department stores in higher-value locations, the risk of surpassing the £500,000 threshold remains a concern.
• Regional Disparities: Retailers in the South East, where commercial rents are typically higher, might find themselves at a disadvantage compared to those in other regions, despite the intended benefits of the reform.

The Burden on Larger Retailers

While the reform aims to support smaller businesses, it simultaneously places a heavier burden on larger retailers. Analysts predict that businesses with a rateable value exceeding £500,000 could see their bills increase dramatically. For instance, properties in London’s West End may face bills rising by over £180,000 annually, which could amount to nearly £63 million in total liabilities for 335 properties.

Concerns from Industry Leaders

Industry leaders like Theo Paphitis, chairman of Ryman and a vocal critic of the current business rates system, have raised alarms about the potential consequences of these changes. Paphitis warns that increased rates could stifle growth and lead to job losses, stating, "Retail is a fantastic engine for growth and quality jobs, but the higher rate of business rates for larger stores risks impacting investment and employment across the country."

Similarly, the DIY retailer B&Q has expressed concerns that the new rates could hinder investment in large-format stores, which are critical for job creation and community engagement.

The Uneven Playing Field

One of the most contentious issues surrounding the business rates reform is the perceived inequity between physical retailers and online giants. Many large online retailers benefit from favorable tax structures that allow them to avoid significant corporation tax, leading to calls for a re-evaluation of how business rates are administered across different sectors.

De Mello highlights this disparity by noting how online companies often escape high taxation, while physical stores remain burdened by rising rates. This imbalance raises questions about the sustainability of the high street and its ability to compete in an increasingly digital marketplace.

Will the Reform Help the Sector?

Despite the government’s claims, many in the retail sector are skeptical about whether this reform will effectively address the challenges facing retailers. Analysts warn that the government's approach may “misfire” and fail to deliver the intended benefits.

Webber, a retail analyst, argues that the anticipated changes could complicate the business rates system further. "What we had hoped to see was a lower multiplier across the board," he states. "Instead, we will have a system that is even more complicated and looks likely to damage rather than save the high street."

Conclusion

The forthcoming reform of business rates in the UK is a bold move aimed at transforming the retail landscape. While smaller retailers may see some relief, the burden placed on larger businesses raises concerns about the overall health of the retail sector. As the government prepares to implement these changes in 2026, the question remains: Will this reform be the lifeline that the high street needs, or will it further entrench existing disparities?

FAQ

What are the main features of the new business rates reform in the UK?

The reform includes a lower multiplier for properties valued under £500,000 and an increased multiplier for those above that threshold. The aim is to support small retailers while increasing contributions from larger businesses.

How many businesses are expected to benefit from the reform?

Over 280,000 retail, hospitality, and leisure properties are expected to benefit from the lower multiplier as a result of the reform.

What concerns do industry leaders have regarding the new business rates?

Industry leaders are concerned that the increased rates for larger retailers could stifle growth, lead to job losses, and exacerbate the challenges faced by physical stores in competing with online retailers.

Will smaller retailers see significant relief from the reform?

While smaller retailers may benefit from reduced rates, experts suggest that the impact may be limited and that broader systemic changes are needed to support independent businesses effectively.

When will the new business rates be implemented?

The new business rates system is set to come into effect in 2026.