The current business rates system stifles growth, but by reducing multipliers and shifting to annual revaluations, we can encourage investment and ensure fairer taxation across sectors.
The UK’s business landscape has shifted dramatically in the past decade, but the business rates system has not kept pace. Businesses, particularly in the retail and hospitality sectors, are struggling under a tax burden that fails to reflect current economic realities. This outdated system not only hampers growth but also discourages investment, stifling potential economic recovery. However, with the right reforms, business rates can become a tool that promotes, rather than inhibits, growth.
Business rates have long been a contentious issue in the UK, and although some relief measures have been implemented, the system still leaves much to be desired. One of the primary concerns is that rates are not linked to a company’s ability to pay, placing undue financial pressure on struggling firms while larger, more profitable enterprises can absorb these costs with less difficulty. The existing structure is not responsive to changes in the economic cycle, neither at the national level nor within local economies.
Lower multipliers, higher growth
The multiplier (the amount your rateable value is multiplied by to get your bill value) in its current form is one of the greatest barriers to business premises occupation. Many companies find themselves paying exorbitant rates that do not correspond with their financial health. Without a reduction in the multiplier, businesses will continue to suffer, and more will likely transition exclusively to online operations, undermining local economies. Here at the British Chambers of Commerce, we believe that lowering the multiplier to 45p or below by the end of the current parliament would provide much-needed relief, allowing businesses to reinvest in growth and create jobs.
Another pressing issue is the division between small businesses (the small business multipler) and larger firms (with the standard multiplier), with the arbitrary rateable value threshold of £51,000 for small business rate relief creating significant distortions. Businesses just above this threshold are caught paying much higher rates, stifling their ability to grow. The government’s recent decision to freeze the small business multiplier at 49.9p while raising the standard multiplier to 54.6p exacerbates this issue. A fairer solution would be to reduce multipliers for both small and standard rates, providing relief across the board.
Annual revaluations
In addition to these changes, the UK government should transition to an annual revaluation cycle, ensuring that business rates remain aligned with current economic conditions. While the move to a three-year revaluation cycle is a positive step, a more frequent revaluation would provide businesses with a clearer understanding of their rates bills and help stabilise the variation between revaluations. The administrative burden this would place on the Valuation Office Agency (VOA) is a valid concern, but given the growing pressure on ratepayers, it is a necessary adjustment to ensure fairness and accuracy.
Balancing online vs physical
Finally, any reform of business rates must address the changing nature of retail in the UK. With the rapid shift to online shopping, there is a growing imbalance between the tax burdens faced by physical and online businesses. The government must explore ways to create a fairer burden of tax between physical and online companies , ensuring that both platforms contribute equitably to public finances.
The business rates system is in dire need of reform, but the path to a fairer, growth-focused approach is clear. By reducing multipliers, moving to annual revaluations, and addressing the divide between online and physical businesses, the government can create a more equitable system that encourages investment and revitalises local economies. Reforming rates is not just about easing the burden on businesses—it’s about building a stronger, more resilient economy.
