The government is accelerating legislation that will increase the rates bills of bigger businesses, in a move experts warn will hit the UK economy rather than help the UK High Street.
It recently introduced draft legislation to the House of Commons enabling the introduction of permanently lower business rates for high street businesses from 2026, which it says would be “funded by a tax rise for the very largest business properties, such as online sales warehouses”. The proposal is for a higher rate (or multiplier) to be payable by businesses occupying property with a rateable value over £500,000.
The draft legislation can be seen here in the Non-Domestic (Multipliers and Private Schools) Bill. It gives the government the power to increase the higher multiplier by 10p in the pound.
According to James Murray, Exchequer Secretary to the Treasury, the move would give the retail, hospitality, and leisure sectors “much-needed certainty and support” thanks to a higher tax on the most valuable 1% of business properties.
The Budget cut business rates relief for retail, hospitality and leisure from 75% to 40%, effective for a year from April 2025.
Colliers said its research shows potentially millions of pounds in extra rates bills will be seen across all sectors as what it describes as "new poorly thought-out legislation" being rushed through Parliament.
John Webber, head of business rates at Colliers, the property consultancy, says its research shows the plans will also increase the burden on the bigger retailers and hospitality businesses, discouraging employment and further investment in the sector, countering the government’s claims “to be saving the high street”.
Colliers has investigated the impact of this proposed legislation, which if introduced, would enable the government to increase the higher multiplier (the rate at which property businesses are taxed) by up to 10p in the pound on businesses with rateable values above £500,000.
Colliers estimates that should this occur, the office sector for example could see £677 million added to its annual business rates tax bill and an extra £266 million could be added to the bills of large distribution warehouses.
The hypermarkets and bigger supermarkets could also see a £228 million rise. Other retail and hotel businesses will not be exempt. Larger shops could see rises of over £87.2 million, retail warehouses and foodstores by £37.5 million and 4-star hotels and major chains an extra £58.6 million, Colliers says.
Colliers estimates that Tesco could see in excess of £80 million extra on its overall rates bill and Sainsbury's and Asda more than£60 million each.
Other key sectors with large occupiers would also be hit, including large industrial and manufacturing which could see an £84.5 million increase and factories, workshops and warehouses,including bakeries & dairies. Colliers says many of these companies supply or support high street businesses, which could see an extra £81.9 million on their business rates bills.
“And the fall out will impact other sectors that the government might not have thought about,” says Webber. “NHS hospitals and clinics, for example could see an extra £78 million on their rates bills. Even local authority schools could see an extra £40 million at a time when many are having to cope with an influx of pupils from the private sector in the fall out from Labour’s VAT and business rates policies against private schools.”
Webber adds that actual business rates rises may well be even higher given there is a revaluation in 2026 which is expected to result in increases in rateable values across the sectors, including for retail and hospitality. "Together with the higher multiplier, this will be carnage," Webber said.
He added: “The government has not thought this policy through properly. Hammering the bigger businesses across the UK with such rates rises, on top of all the other costs inflicted on them in the Budget will not stimulate growth and investment. Rather the opposite.
“And putting further costs on the bigger retailers and hospitality businesses who actually create the employment opportunities in the sector will just misfire. There will be no incentives to expand, and increased costs will most likely be put through to the consumer. Jobs may be cut. I fail to see how the high street will benefit.”
Webber is also concerned about how quickly the legislation is going through Parliament. “The second reading of the bill was at the end of November, with the third reading expected shortly.
“The Treasury is rushing this through without even having the discussions with industry that they promised at the time of the Budget. They are clearly doing this to get their taxation of private schools in place by January, ignoring the fact that they have not thought through the implications of their wider business rates reforms.
“We are also concerned about the paragraph in the bill which provides a power for the Treasury to define 'the meaning of qualifying retail, hospitality and leisure hereditament'. This means we won’t know exactly what properties will be included in the new legislation. It’s preposterous that the Government is redefining the sector without any consultation with the industry. “
“Finally, whilst we don’t dispute that smaller high street shops should see a lower multiplier than they are currently seeing, particularly if reliefs are to be cut from 75% to 40% in 2025, what we had hoped to see from Labour’s business rates policy was a lower multiplier across the board, rebasing it to something businesses could afford and which would stimulate growth and investment. And to simplify an already over complicated system.
"Instead by introducing additional multipliers we have an even more confused system and one where some sectors could well be seeing a tax rate of nearer 60p in the pound rather than 50p. This is not good news for UK plc. It is not good news for investment and growth. Nor is it good news for the high street. We will be responding to the Treasury accordingly.”