Why are business rates always in the news?

How pandemic reliefs, revaluations and sector-specific discounts turned a stable tax into a permanent policy debate.

For many years, business rates were among the quieter parts of the English tax system. The bill was calculated on a property’s rateable value and a national multiplier, revaluations arrived periodically and councils could rely on a relatively steady stream of income. Businesses often disputed valuations and disliked the tax, although the framework itself was predictable. But over the last decade and particularly in the last few years, business rates have undergone a transformation, from a tax discussed mainly at revaluations, to a key feature of almost every Budget cycle.

Why are business rates so important?

With business rates ranking as the UK’s seventh-largest tax and raising around £30 billion in 2025/26^[1], the scale of the revenue at stake helps explain successive chancellors’ reluctance to pursue wholesale reform or abolition. For governments, much of the appeal comes from taxing property, which is easy to identify and cannot be moved elsewhere to escape a bill. This makes revenue predictable and collection relatively straightforward, giving governments reasons to retain the tax despite commitments to change it. Successive chancellors have consequently attempted to manage its shortcomings through reliefs, caps, supplements and sector-specific discounts, with each intervention adding another layer to the system.

Covid

When Covid forced large parts of the high street to close in 2020, eligible retail, hospitality and leisure properties in England received 100% business rates relief for 2020/21. This continued for the first three months of 2021/22, followed by 66% relief for the remainder of that year. The discount then became 50% in 2022/23, 75% in both 2023/24 and 2024/25, and 40% in 2025/26, with the later schemes subject to cash caps. What began as emergency support developed into six years of annual decisions, leaving businesses unable to forecast their bills with confidence beyond the following April.

Alongside these changes to relief, the pandemic disrupted the valuation cycle. The revaluation planned for 2022 was postponed until 2023, after which legislation established three-yearly revaluations in England. This meant the next revaluation would take effect in April 2026, coinciding with the end of the temporary support.

Changes for 2026

In her 2025 Budget, Rachel Reeves sought to put support for retail, hospitality and leisure businesses on a more permanent footing by introducing lower multipliers for eligible properties from April 2026. With a separate rate for properties valued at £500,000 or more, England moved from two principal multipliers to five.

Under this structure, qualifying retail, hospitality and leisure properties use a multiplier of 38.2p where the rateable value is below £51,000 and 43p where it is between £51,000 and £499,999. These sit 5p below the respective national multipliers of 43.2p and 48p. For properties with a rateable value of at least £500,000, a high-value multiplier of 50.8p applies, 2.8p above the national standard rate^[2].

With bills also reflecting the withdrawal of the 40% relief and updated valuations based on April 2024 rents, a lower multiplier did not guarantee a lower bill. Many businesses whose premises had risen in rental value could therefore face increases despite the reduction in the tax rate. This hit the hospitality sector particularly hard, as it struggled to absorb increasing business rates bills, alongside rises in National Insurance, energy costs and the national living wage.

The Pubs Problem

Among the businesses most exposed to these interactions, pubs have been at the forefront of the public debate. Valuation Office Agency (VOA) statistics show that average rateable values for public houses and pub restaurants increased by 29% at the 2026 revaluation, compared with 19% across all English properties^[3]. The lower retail, hospitality and leisure multipliers and transitional relief often proved insufficient to absorb the combined effect of those valuation increases and the withdrawal of the 40% retail, hospitality and leisure discount.

In response to the resulting pressure, the government introduced another series of targeted measures. Pubs and live music venues received a further 15% reduction for 2026/27, followed by a planned real-terms freeze for two years^[4]. Prime Minister Andy Burnham subsequently announced an additional 20% reduction for pubs, social clubs and most live music venues from April 2027. The government estimates that nearly 32,000 venues will benefit, with a typical pub saving around £1,100 during the first year^[5]. The PM has also promised that further help will be coming for pubs at the next budget. While the desire to help pubs has been well intentioned, it has created a high degree of complexity in the business rates system.

The Wider Issues with the Tax

For businesses considering investment in their premises, the system can also create a direct financial disincentive, as investing in improvements that increase the annual rental value of a property may lead to a higher business rates bill. An extension, refurbishment or energy-efficiency upgrade can therefore increase the recurring cost of occupying the building. The current improvement relief delays that increase for only 12 months after qualifying works are completed, even where the investment has a payback period measured over many years. Extending the relief period, potentially for up to ten years, would give businesses and property owners greater confidence that genuine improvements will not generate an immediate and lasting tax penalty.

Business rates also take no direct account of a ratepayer’s profitability, meaning that a loss-making retailer can face the same gross liability as a profitable operator occupying an equivalent property. Elsewhere in the tax system, falling profits reduce corporation tax liabilities and lower sales generally mean lower VAT payments, but a downturn in trading does not itself reduce a business’s rates bill. This makes business rates feel unfair to many firms.

Even where the government chooses to reduce business rates generally, the long-term distribution of the benefit remains uncertain. Research has found that changes in business rates can be reflected in commercial rents over time, shifting a significant part of the economic burden towards property owners^[6]. During a fixed lease or a weak property market, an occupier may retain much of the immediate benefit from a reduction, however as leases are renewed, landlords may capture a significant proportion of that benefit through higher rents. Reforms that directly remove investment penalties or improve the valuation process may therefore provide a more useful benefit to businesses and the economy, than an untargeted reduction in the multiplier.

Budget 2026

With the Budget scheduled for 28 October 2026, several further changes are already under consideration. The government must set out the detailed rules for the 20% discount for pubs, clubs and live music venues. It has also promised to make changes to Small Business Rates Relief^[7], which currently provides 100% relief for a business occupying one property with a rateable value of no more than £12,000 and tapers to zero at £15,000. Before becoming Prime Minister, Burnham proposed increasing those thresholds to £18,000 and £21,000 respectively^[8]. Although the proposal has received support from organisations including the Association of Convenience Stores, the government has yet to confirm the figures that will appear in the Budget.

As ministers consider how to fund the additional support for pubs, the proposed treatment of vape shops may prove particularly difficult to draft. The government has said that part of the cost will be met by reviewing reliefs available to businesses considered to make a limited contribution to local communities, giving vape shops as an example. Where a specialist retailer sells almost entirely vaping products, identifying the business may be straightforward. However, with newsagents, convenience stores and off-licences selling vapes alongside other goods, defining a vape shop for business rates purposes may prove difficult, as there is no clear dividing line between specialist vape retailers and shops where vaping products account for only part of their trade.

Depending on which relief the government intends to withdraw, the amount raised from vape shops may also be limited. Many small premises already pay no business rates through Small Business Rates Relief, meaning that withdrawing access to the lower retail multiplier would raise no additional revenue where the existing liability is nil.

Beyond the announced sectoral measures, the Budget may provide a response to the Treasury’s earlier call for evidence on business rates and investment. A longer improvement relief, greater protection for energy-efficiency works and improved access to the evidence used in valuations would address several of the structural problems identified by businesses. Greater transparency could also reduce speculative appeals and make the system easier to navigate for smaller businesses that lack specialist representation.

Alongside any Budget measures, the Treasury’s review of pub and hotel valuation methods is due to report by the end of March 2027, with recommendations intended to inform the 2029 revaluation. The 2026 Budget could provide near-term support for this sector, while questions surrounding fair maintainable turnover and receipts-and-expenditure valuations continue to be resolved.

What next?

Taken together, the signals from government point towards further targeted and revenue-balanced changes in the Budget. The scale of the revenue raised and the continuing pressure on the public finances make wholesale replacement of business rates unlikely. A more realistic test will be whether the government can provide businesses with a settlement that lasts for longer than a single financial year.

Simpler multipliers, more transparent valuations, objective eligibility rules and longer protection for genuine investment would all improve certainty. Without greater stability, business rates will continue to appear in the news as each temporary solution generates a new cliff edge, valuation dispute or demand for relief.

^[1] Tax statistics: an overview, https://commonslibrary.parliament.uk/research-briefings/cbp-8513/

[2] Estimate your business rates https://www.gov.uk/estimate-your-business-rates#

^[3] Non-domestic rating: change in rateable value of rating lists, England and Wales, 2026 Revaluation (draft list) https://www.gov.uk/government/statistics/non-domestic-rating-change-in-rateable-value-of-rating-lists-england-and-wales-2026-revaluation-draft-list

^[4] Pubs and Live Music Venues Relief https://www.gov.uk/government/news/pubs-and-live-music-venues-relief

^[5] Burnham means business: PM slashes business rates bills for pubs, clubs and live music venues

https://www.gov.uk/government/news/burnham-means-business-pm-slashes-business-rates-bills-for-pubs-clubs-and-live-music-venues

^[6] Impacts of taxation on small businesses: Business rates in the UK https://post.parliament.uk/impacts-of-taxation-on-small-businesses-business-rates-in-the-uk/#Rents

^[7] Burnham means business: PM slashes business rates bills for pubs, clubs and live music venues

https://www.gov.uk/government/news/burnham-means-business-pm-slashes-business-rates-bills-for-pubs-clubs-and-live-music-venues

^[8] Burnham Business Rates Proposals Welcome But More Support Needed https://www.acs.org.uk/press-releases/burnham-business-rates-proposals-welcome-more-support-needed