Warning of £2.6bn business rates ‘cliff edge’ for retail and hospitality firms

Retail and hospitality firms could face a £2.66 billion a year rise in business rates in April, experts have warned.

Shops, pubs and restaurants currently receive a 75% relief on their business rates bill, according to Government data, but that is not set to continue past March 31 next year.

No future discounts have been factored into fiscal forecasts by the Office for Budget Responsibility, the UK’s public finances watchdog.

Alex Probyn, president of property tax at data firm Altus Group, warned that the sectors face a “cliff edge” moment unless the tax break is extended in the upcoming Budget.

Chancellor Rachel Reeves has warned that the Government will have to make “tough decisions” at the spending review at the end of October.

But it has left Ms Reeves with a balancing act, between shoring up the public purse and making policies which encourage economic growth, something the new Government has cited as a key objective.

The current business rates relief saves the retail, hospitality and leisure sectors a combined £2.41 billion a year, according to Altus research.

That could increase by another £250 million if the core rate of inflation, the consumer prices index, comes in at the 1.9% level predicted by economists next week, bringing the total bill for the sectors to £2.7 billion.

The tax is levied on businesses which have physical premises, and has long been criticised for handing digital-only companies like online retailers an unfair advantage.

Mr Probyn said: “Despite the £22 billion ‘black hole’ in the nation’s public finances, the Chancellor must now prevent a cliff edge for the retail, hospitality and leisure sectors at her upcoming Budget whilst also delivering upon Labour’s manifesto commitment to lower the undue burden already placed on our high streets.”

Pubs and restaurants were at the sharp end of the Covid-19 pandemic, closing for months at a time during lockdowns.

Then, through 2022 and 2023, skyrocketing inflation caused their operating costs to rise while the cost-of-living crisis depressed sales.

The number of pub closures increased to 80 per month over the first three months of 2024, up by 51% compared with the same period last year, according to official Government data for England and Wales.

Meanwhile, research from accountant PwC found that 6,945 shops have closed so far this year in the UK, equivalent to 38 shops per day.

Labour said it would reform the business rates system in its pre-election manifesto but has not announced specific changes since coming into Government.

James Murray, the Exchequer Secretary, told Parliament last month that “the Government is committed to a business rates system which raises the same revenue but in a fairer way”.