The House of Lords has scuppered part of the government's plans to reform business rates.
It has voted to remove key provisions that would have imposed a new supplement on some properties and withdrawn charitable rates relief from private schools. The amendments come after concerns were raised about a lack of justification and clarity in the government’s proposals.
At the Report Stage of the Non-domestic Rating (Multipliers and Private Schools) Bill on 18 March, the Lords passed amendments that effectively halt the government’s attempt to introduce a supplementary tax on larger properties in England from April 2026, which was aimed at funding discounts for most retail, hospitality and leisure properties.
Experts at Newmark point out that the government had justified these measures to meet its 2024 manifesto pledge to "replace the business rates system, so we can raise the same revenue but in a fairer way. This new system will level the playing field between the high street and online giants".
A concern expressed by opposition Lords was the application of a supplement, potentially of up to 20%, proposed to be imposed on all properties with rateable value assessments of £500,000 and above. This would take in hospitals, manufacturing sites, offices and some high-street retailers.
The introduction of the supplement was justified in that it would apply to distribution warehouses occupied by the major online groups such as Amazon but peers voted to exclude healthcare settings, manufacturing sites and anchor stores from the supplement.
Newmark points out that the government failed to justify the arbitrary £500,000 rateable value threshold for applying the supplement, having failed to undertake an impact study of the reforms which raised concerns about its fairness. Additionally, the proposed reforms would have generated an extra £2.65 billion for the Treasury, contradicting the government’s claim that the changes would be revenue-neutral.
Newmark said that "alarmingly", the government admitted in Parliament that it lacks data on how many large properties are actually occupied by online retailers, casting further doubt on the justification for the measure.
Simon Green, head of business rates at Newmark, said in a statement: "This is a significant blow to the Government’s business rates reform agenda, leaving fundamental questions unanswered. The House of Lords has rightly challenged reforms that were rushed through without prior consultation which risk unfairly penalising key sectors of the economy. This decision highlights the urgent need for a more strategic and targeted approach.
"The government’s initial policy in opposition was to abolish business rates but this was subsequently amended to a promise of genuine business rates reform. Yet this Bill is little more than a continuation of the previous administration’s piecemeal tinkering with an already over-complicated system. England’s business rates are among the highest local property taxes in the world, and rather than reducing the burden for all businesses, the government is further squeezing large businesses with additional supplements.”
Green added: “This Bill is a top concern for UK businesses, adding complexity, uncertainty, and increased costs for many. Ratepayers accept their responsibility to contribute fairly to local services, but they will continue to push for genuine reform, something this government has so far failed to deliver. The Lords have delivered a clear ‘thumbs-down’ to the government which must now reconsider its position."