Business rates relief slashed but system will be overhauled in 2026

Currently, companies within the hospitality trade are able to receive a 75% reduction in their business rates bills but this was set to expire on 31 March 2025 with the most a site can receive in relief each billing year being £110,000 per business.

However, this relief figure will now fall to 40% after the Budget on Wednesday 30 October.

The backbone of our high streets

In the first Labour Budget in 14 years and the first to be presented by a woman, Chancellor of the Exchequer and former economist at the Bank of England Rachel Reeves said: “From 2026/27, we intend to introduce two permanently lower tax rates for retail, hospitality and leisure properties, which make up the backbone of our high streets across the country.

“It is our intention that it is paid for by a higher multiplier for the most valuable properties. But the previous Government created a cliff edge next year as temporary reliefs end.

“I will today provide 40% relief on business rates for the retail, hospitality and leisure industry for 2025/26 up to a cap of £110,000 per business. Alongside this, the small business tax multiplier will be frozen next year.”

Looks like chancellor has confirmed Business rates reform from 2026 with a permanent lower tax rate for hospitality paid for by higher tax rate on online business premises. That should reduce all bills. However, current reliefs while extended are reduced to 40%

— Kate Nicholls OBE (@UKHospKate) October 30, 2024

Commercial real estate intelligence expert Altus Group explained the reduction of the business rates discount for retail, hospitality and leisure firms in England from 75% to 40% from 1 April for the 2025/26 financial year will mean an average 140% rise in business rates bills for more than 250,000 high street premises in England next April.

The average business rates bill for pubs will increase from £3,938 to £9,451, restaurants will see their average bill rising from £5,051 to £12,122 while the average shop business rates bill will go from £3,589 to £8,613 next April for 2025/26.

Altus Group president of property tax Alex Probyn said: “Despite Labour’s manifesto recognition of the undue burden business rates place on our high streets, this Budget actually increases that burden by £688m for those types of business for next year in the short term.”

We're protecting our high streets.

From 2026-27 permanently lower tax rates will be introduced for retail, hospitality & leisure (RHL) properties.

Plus, for 2025-26, 250,000 RHL properties will receive 40% relief on their bills, up to a cash cap of £110,000 per business. pic.twitter.com/OWSplc4YJc

— HM Treasury (@hmtreasury) October 30, 2024

The Government have announced a permanent new, lower rate of business rates for retail, leisure and hospitality businesses from 2026/27. We hope this will finally see an end to the current system where pubs are penalised by unfair rates bills.

— CAMRA (@CAMRA_Official) October 30, 2024

Rateable values

A pub property’s rateable value – where the business rates costs come from - is an assessment of the annual rent the property would rent for if it were available to let on the open market at a fixed valuation date.

From 1 April 2023, the rateable values have been based on the valuation date of 1 April 2021.

The UK Non-Domestic Rating Act 2023 also legislated for three yearly revaluations from 2023, meaning  rateable values will be updated every three years. The next revaluation is due to come into effect on 1 April 2026, based on a valuation date of 1 April 2024.

But then business rates relief has just been cut from 75% to 40% from April?

We will need more than just ‘a penny off a pint’ to cover that! https://t.co/1h2JfciDjc

— Justine Bedford (@justinebedford1) October 30, 2024

Night-time economy adviser for Greater Manchester Sacha Lord said: “Business rate reliefs have been a lifeline for hospitality over the past few years.

“The partial extension of this relief from 75% to 40% will save jobs, but this will still not be enough for many and we will see restaurants and bars now facing unsustainable increases to their rates bills.” 

The British Institute of Innkeeping (BII) stated: “With only one in four businesses currently profitable, this additional cost will severely impact huge numbers of pubs across the sector, leaving them facing difficult decisions on whether they will be able to continue trading.

“While the announcement of a full reform of the business rates system in 26/27, with permanently lower rates to rebalance the tax regime, is welcome, it is long overdue and does not protect our pubs in the meantime.”

BII CEO Steve Alton added: “The quieter winter months will be incredibly tough, especially with lower rate relief of 40% on business rates, as well as increased employment costs.

“This support needs to be an actual reduction in the unfair level of tax our pubs pay with a priority on a specific VAT reduction for pubs, as well as a full and urgent business rates reform, as a recognition of their vital role in connecting communities, providing local employment and supporting a host of other local businesses.

“Without this investment in their futures, we stand to lose many more of these unique and essential community hubs.”

Young's CEO Simon Dodd said: “The Chancellor says she wants to stimulate growth, so do we.

“We are pleased the Government has listened and committed to support hospitality through reviewing business rates but this needed urgent reform especially when costs are increasing substantially next year.

“The can has been kicked to 2026/27 before we get certainty and real change. We need the Government to deliver on this promise, which has too often been swept under the carpet and ignored.”