Government announcement on business rates: IFS response

Stuart Adam, a Senior Economist at IFS, said:

‘Whatever the government wants to achieve with the business rates system, this complex, ever-changing mishmash of policies cannot be a sensible way to go about it.

Business rates have gone from being one of the most stable and simple taxes in the system to one of the least. We seem to be moving ever closer to a system in which the government gives every business a score out of ten each year according to how much it likes the business that year, and sets its tax rate that year accordingly.

A coherent view of what business rates are intended to achieve and how they should be designed to achieve that is sorely needed.’ 

The government today announced a 20% cut in business rates for pubs, clubs and live music venues (excluding the largest music venues) in England. According to government figures, the new relief will cost the exchequer about £100 million a year, to be paid for by reviewing business rates reliefs for ‘anti-social businesses’ and by changing the way VAT is collected on sales via online marketplaces to reduce non-compliance.

For a typical independent pub, this (apparently permanent) 20% reduction will come on top of a (temporary) 15% reduction for pubs and live music venues and a (permanent) 5 percentage point reduction in the tax rate for most hospitality, leisure and retail properties. All three of these policies have been announced or confirmed separately in the space of the last eight months. In total, they amount to a 40% lower business rates bill than if the property were used for (say) offices.

The same pub might also qualify for transitional relief (if its bill would have increased as a result of the revaluation in April 2026), small business relief (if the property’s estimated annual rental value is between £12,000 and £15,000: below £12,000, they pay no business rates at all) and/or the (different) ‘supporting small business relief’ (if its bill would have gone up as a result of losing some previous relief, as well as revaluation).

What combination of these the business will qualify for depends on whether it counts as a pub or live music venue, a nightclub or a different kind of hospitality/leisure/retail business; the property’s estimated annual rental value; how that value changed between 2021 and 2024; and what reliefs the business previously qualified for.

And more is to come: the government says it ‘will return to our commitment to reform the wider business rates system, including Small Business Rates Relief, at the Budget’. Last month, Andy Burnham said he would increase the £12,000 threshold at which business rates become payable for hospitality, leisure and retail businesses – presumably implying, for the first time, a different threshold for those businesses than for other businesses.

Meanwhile, the government says it will pay for the new relief announced today in part by ‘reviewing reliefs provided to anti-social businesses, such as vape shops’. Since there is not currently an ‘anti-social business relief’ waiting to be abolished, this presumably means the government will come up with a new definition of what is an ‘anti-social business’ (apparently to include vape shops) and decide which current reliefs (perhaps small business relief, for example) they will no longer qualify for – a recipe for yet more complexity and disputes.