British companies face a stealth tax rise of £900mn next year and up to £2.7bn in 2026 through higher business rates, despite Labour’s manifesto promise not to increase the amount of cash raised by the levy.
The business rates paid by thousands of shops, pubs and restaurants will more than double next year as long-standing relief is tapered off by ministers, according to calculations from property research group Altus Group.
Support for retail and hospitality companies with business rates will fall from the Treasury’s estimated £2.65bn this year to £1.7bn next year and then to zero the following year, according to documents published during last month’s Budget.
The government has promised an overhaul of business rates in 2026 that could see those sectors face a permanently lower rate, something that complicates any calculations about the long term impact on industry.
However, the opposition Conservative party accused the Labour government of a “backdoor hike in business rates” ahead of the second reading in parliament on Monday of the “Non-Domestic Rating Bill”, which deals with business rates.
The Tories say the changes will compound the pressure on companies already reeling from a £25bn rise in annual National Insurance employer contributions, a higher minimum wage and Labour’s package of workers’ rights.
The Labour party explicitly said in its manifesto that it would overhaul the business rates system “so we can raise the same revenue but in a fairer way”.
But in the Budget on October 30 chancellor Rachel Reeves cut back previous rate relief for the retail and hospitality sectors, meaning a jump of £900mn in overall business rate payments next year and then a further £1.8bn in 2026.
Reeves announced in her Budget speech that there would be 40 per cent business rates relief for the retail, hospitality and leisure sectors for 2025-26 through discretionary local discounts.
That was much lower than the previous 75 per cent business rates relief enjoyed by those sectors under the Conservative government, which had been due to end entirely from April 2025.
That means support for retail and hospitality companies with business rates will fall from the Treasury’s estimated £2.65bn to £1.7bn next year and then to zero the following year — effectively raising £2.65bn without further government measures.
Altus Group said the cut from 75 per cent to 40 per cent next April would mean an average 140 per cent rise in business rates bills for more than 250,000 high street premises in England alone.
It said the average shop will now see its business rates bill increase from £3,589 to £8,613 next April. Restaurants will see their average bill rising from £5,051 to £12,122.
A spokesperson for the British Beer and Pub Association said the cut in relief from April from 75 per cent to 40 per cent meant the sector was going to face “even more costs”.
The Conservative government offered relief at various levels between 50 and 75 per cent as emergency measures during the pandemic and subsequent cost of living crisis.
The industry expected this to be unwound amid more “normal” trading conditions.
Andrew Griffith, shadow business secretary, said: “This punishing change comes on top of the £25bn National Insurance raid, higher inflation, and the trade union-inspired employment bill. Labour has done everything possible to create an anti-business environment.”
The situation is complicated by the fact that ministers are introducing further changes to the way the business rates system operates from 2026.
As a result of the legislation currently going through parliament, future relief for the retail, hospitality and leisure sectors will come from a new surcharge on large premises, rather than from central government funding.
Alex Probyn, president of property tax at Altus Group, said despite Labour’s pledge to reduce the burden of business rates, that burden would actually increase next year.
“From 2026 discounts will then be borne by 1 per cent of ratepayers with the largest properties and not the Exchequer,” he said. “The largest properties aren’t necessarily those with the broadest shoulders.”
The British Property Federation said it recognised that next year’s relief of 40 per cent would still be higher than the 33 per cent rate in 2019, when it was first introduced.
“The government has pledged to create a fairer and more sustainable business rates system but the changes proposed are really a case of robbing Peter to pay Paul,” said Ion Fletcher, policy director at the BPF.
“What we need is fundamental reform that unpegs the level of tax from inflation, introduces annual revaluations . . . and a long-term plan for reducing the overall level of property tax, to a level more competitive with international peers.”
The government did not immediately respond to a request for comment.
