Budget 2025: What exactly is happening with business rates?
Long-awaited changes to business rates were finally announced in the Budget, with a lower rate for small companies to be paid for by a higher levy for large firms.
Retailers have been railing against for business rates for years, with concerns that the tax creates an unfair playing field between high street and online firms, which only have to pay warehouse property taxes.
Alongside business rates changes, Chancellor Rachel Reeves announced a “a package of regulatory changes” and promised to “support the great business pub” in her second Budget.
Business rates receipts for the Treasury are set to be £2.7bn higher in 2029-30.
What are business rates?
Business rates are taxes on commercial properties – whether that’s offices, shops, hotels or pubs.
The tax is calculated by multiplying the rateable value of a property by a multiplier set by central government.
A property’s rateable value is an assessment of the annual rent the property would rent for if it were available to let on the open market.
The rateable value is recalculated every three years based on inflation, with the most recent revaluation set to come into effect next Spring.
The multiplier for 2025/26 was set at 49.9p for small businesses, and 55.5p for ‘standard’ businesses.
Retail, hospitality and leisure businesses were given 40 per cent relief on their business rates bill in a bill to boost the industries post-pandemic.
How have rates changed?
Reeves announced a “permanently lower” business rates for retail, hospitality and leisure firms (RHL), paid for by higher levies on big properties.
RHL relief will reduce from the current 40 per cent discount to 20 per cent for the smallest properties (with a rateable value of up to £51,000) and 10 per cent for those properties with a rateable value between £51,000 and £500,000.
“The amount of RHL relief has already reduced from 75 per cent to 40 per cent in 2025/26, so to shrink this relief to between 10 per cent and 20 per cent discount for 2026/27 has taken everyone by surprise,” David Parker, head of business rates at Savills, said.
“Having said this, as this relief was proposed to be funded by occupiers of larger properties, there was an argument to say that there should be no RHL relief, as was the case before Covid-19, so to restrict the RHL relief and lessen the burden on the larger property occupiers is not necessarily a bad thing,” he added.
The legislation allows ‘up to’ 20 per cent to be added to the rates bills of any occupier of a property with a rateable value of £500,000 or more, Parker explained, although the current rate has been set at around 5.8 per cent.
“For this to initially be set at less than a third of this maximum figure has to be good news for business,” Parker said.
How has industry responded to the changes?
The response to Reeves’ changes has varied from mixed to negative, with arguments that the relief has come ‘too little, too late’ and that big stores can’t stomach the higher costs.
“We welcome the Budget in parts, but it doesn’t fix the structural issue of business rates and instead offers a series of short-term sticking-plaster solutions,” HOLBA chief executive Ros Morgan said.
Kate Nicholls, chair of UKHospitality, similarly argued that business rates reform has not been delivered “in full”.
She said: “Today the Chancellor recognised the importance of hospitality… [but] the 5p discount is only a quarter of the maximum 20p discount the government proposed last year.
“This is particularly frustrating given changes to business rates valuations will mean that many hospitality businesses’ tax bills will still significantly rise, alongside increases to the minimum wage adding extra cost.”
Parker, meanwhile, hit out at the “concept of penalising an occupier of a large property”, calling it “fundamentally flawed”.
“The narrative is for this burden to be borne by the ‘online retail giants’, whereas in reality it is any occupier of a property with a rateable value of £500,000 or more who has to pay,” Parker said.