Modernising business rates for a changing economy
Richard Williamson, National Head of Rating, WSP GL Hearn
| WSP
The debate surrounding the future of business rates in the UK has intensified following the recent Autumn Budget. While some relief was offered, many hoped for more substantial changes to address deeper, structural issues within the system. With the prospect of more radical reform delayed, we explore the key elements of the Chancellor’s statement and consider what they truly mean for businesses, local governments, and the wider economy.
A step forward, not a leap
In the lead-up to the Budget, calls for a fundamental overhaul of the business rates system were widespread. However, the October 2024 announcements indicate a more incremental approach—one that offers short-term relief for certain sectors but stops short of addressing the deeper issues businesses face. The government’s Transforming Business Rates consultation paper, published alongside the Budget, marks an encouraging step forward in terms of approach, but substantial reform is still some years away. Efforts have focused on tweaking existing reliefs and incentives, which, while providing immediate help, do not resolve the long-term misalignment of the system with modern business practices.
Immediate relief, but long-term challenges persist
Key measures introduced in the Chancellor’s speech, such as the freeze on the small multiplier for 2025/26, provide a welcome reprieve for smaller businesses. These businesses, with rateable values under £51,000, will collectively save approximately £135 million. However, this short-term relief does little to mitigate the broader pressures they face.
Meanwhile, the standard multiplier will rise by 1.7%, meaning the overall tax burden remains largely unchanged, continuing to weigh on businesses as inflation rises. The extension of Retail, Hospitality, and Leisure (RHL) relief is also positive, though the planned reduction in relief from 75% in 2024/25 to 40% in 2025/26 will still leave these sectors vulnerable and the measure is constrained by UK subsidy control rules.
Regional reforms and the impact on local economies
One significant measure from the Budget is the introduction of lower multipliers for properties in the Retail, Hospitality, and Leisure sectors from 2026/27. This will benefit smaller businesses with rateable values under £500,000, though the full impact will not be felt until after the 2026 revaluation, introducing an element of uncertainty. This is because the extent of such relief is not yet known and won’t be announced until the 2025 Autumn budget.
The recently published Non-Domestic Rating (Multipliers and Private Schools) Bill to enable the new regime sets out broad constraints within which government will configure its scheme. But the measure will only benefit these sectors, with many other businesses not receiving any relief from the burden of business rates.
On the other hand, the decision to increase the multiplier for larger properties—such as distribution warehouses—risks exacerbating tax burdens for sectors already grappling with challenges like inflation and supply chain disruptions. The continued rollout of business rates retention schemes in regions like the West of England and Greater London allows local authorities to retain more revenue, though the £1.2 billion reduction in central government revenue could raise questions about fairness in resource distribution.
The need for reform in a modern economy
The current system no longer reflects the reality of today’s business environment, but the Chancellor’s announcements clearly show that business rates, as a tax, are here to stay over the foreseeable future. With an economy increasingly shaped by digitalisation, remote working, and changing consumption habits, property values—which remain a cornerstone of the business rates system—no longer reflect a business’s ability to pay. Traditional sectors, such as retail, continue to bear the brunt of this misalignment, while digital-first industries that require little physical infrastructure are taxed far less, raising concerns over fairness. This dynamic has not really been tackled sufficiently by the measures announced.
At the same time, business rates remain a critical source of funding for local authorities, supporting services like healthcare, education, and infrastructure. The challenge lies in finding a balance that supports businesses while ensuring that local governments can continue to fund vital public services.
Looking ahead
While the Chancellor’s Statement contains some useful measures, the real opportunity lies in reforming the business rates system to better align with the demands of a rapidly evolving economy. Longer-term reforms—such as greater transparency in the rating system and improvements to the appeals process—are critical steps toward creating a more effective and equitable tax structure. The reform process must balance the need to modernise the system to reflect contemporary business realities, while safeguarding the revenue streams that local governments rely on to fund essential services.
The Budget offers some temporary relief, but more fundamental reforms are needed. By modernising the business rates system, policymakers can ensure that businesses are better supported, and local communities continue to thrive. The goal should be to create a tax framework that is fair, flexible, and fit for the future—a system that encourages business growth, supports local economies, and meets the needs of a rapidly changing world.
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