There will be an “unavoidable double hit” to property taxation next year when the business rates review combines with rising inflation. There is likely to be a surge in payments by businesses totalling £2.5 billion, that’s according to analysis from global tax firm Ryan.
Inflation has been on a rising trend since the tail end of 2024. In July 2025, the Consumer Price Index (CPI) for the UK rose by 3.6% in the 12 months to June 2025, while the Retail Price Index (RPI) showed an annual rate of 4.8%. The CPI is the UK's official measure of inflation for accurate international comparisons, the RPI is used for some government uprating purposes, for example rail tickets and student loans.
An increase in RPI is significant as it indicates that the average cost of a basket of goods and services is increasing, which means that a household's income buys less than it did before.
Although inflation in the UK economy is a major cause for concern because of the impact it will have on business rates, UK CPI inflation is expected to rise to around 4% in late 2025, driven by higher food and energy prices. Later, in 2026 it is expected to fall back again towards the Bank of England's 2% target.
Meanwhile, 2026 supply pressures are expected to ease from their post Covid levels and the economy should “open up” influencing the inflation outlook. Items such as global trade policy (Trumpian Tariffs) and domestic costs, like increases in the National Living Wage have their impact. Services-based inflation is likely to remain a concern as it’s been persistence - the Office for Budget Responsibility (OBR) has forecast a peak of 3.8% in July 2025, with a fall expected from 2026 onwards.
Analysis conducted by Ryan indicates that inflation, coupled with a government business rates revaluation exercise in 2026, will combine to drive up business rates bills. Ryan calculates a £1.11 billion addition to the business rates burden in England.
Business rates are property taxes paid by commercial property occupants in the UK. These are levied on commercial properties across the UK, particularly affecting high street businesses. In Scotland, Wales and Northern Ireland these are devolved matters to the regions.
From next April there will be a nationwide revaluation exercise on business rates in England. It will link payments amounts to values in the property market from April 2024. Although revaluations are “revenue neutral” across the country as a whole, which means the overall tax take should not change, that does not mean that payments will not vary based on changing valuations in sectors and regions.
There will be winners and losers throughout the rates revaluation exercise but also all will be affected by the rise in inflation. The increase in business rates is typically based on the consumer price index (CPI), the inflation measure for September. Therefore, this year’s September rate of inflation will determine how large an increase firms have next year.
The Bank of England said earlier this month when it reduced the bank’s interest rate from 4.25 to 4% that climbing food prices are pushing up inflation and it predicted that inflation would hit 4% in September, with limited scope for more interest rates reductions this year.
In addition, the Government has said that April 2026 it will introduce a supplementary multiplier of up to 10p on properties with rateable values above £500,000, which is estimated to affect 17,000 properties across the country. The measure is designed to facilitate a permanent reduction in the amounts for smaller retail, hospitality and leisure properties.
The net effect of this, according to experts in the field, will be to transfer around £1.38 billion of the currently provided Government-funded discounts, across to larger businesses.
Alex Probyn, Ryan’s practice leader of property tax for Europe and Asia-Pacific, reported by PA media:
“The 2026 revaluation itself is a redistribution exercise, but when you layer on both inflation and the new supplementary multiplier, businesses are left staring down the barrel of an unavoidable double hit. Larger occupiers in particular will shoulder a disproportionate burden. With the UK already having the highest property taxes in the developed world, this £2.5 billion increase risks undermining the UK’s competitiveness at a critical time for the economy.”
In its 2024 manifesto Labour committed to “replace the business rates system” in England to “level the playing field between the high street and online giants, better to incentivise investment, tackle empty properties and support entrepreneurship”.
Business rates are set according to the value of a business’s property and paid to the local authority. They have been temporarily reduced by recent budgets for smaller retail businesses in each of the last five financial years. However, many people in the industries affected have called for them to be reduced permanently.
Last October the British Retail Consortium sent a letter to the government signed by 71 chief executives in the larger retail sector, urging the Chancellor to cut business rates for retail properties by 20% from April 2025.
The signatories to the letter argued that the retail sector was paying a disproportionate amount of business tax compared to its contribution to the economy and there were indications of widespread support for this position within the retail sector.
Since Covid, retail premises have benefitted from this temporary business rates relief in each year, as shown in the table below. In the current 2024/25 financial year, retail properties will receive 75% relief on their business rate bill (up to a maximum of £110,000 per business).
Local authorities retain around £13 billion of revenue every year from business rates. If this system changes drastically any reduction in their funding and councils would be looking for alternative sources of funding to avoid even more spending cuts than they are making already.
Rates bills are calculated by using a pre-set multiplier, multiplying the rateable value of a property by this ‘multiplier’. For example, if a property has a rateable value of £100,000, and the multiplier is set at 30 pence in the pound, the property’s business rates bill would be £30,000 a year.
Currently, the UK government sets two multipliers for England: one for small businesses (rateable values under £51,000) and the standard multiplier for the rest. According to the House of Commons Library, one option for change could mean primary legislation extending this power so that the government could set different multipliers for different classes of property.
For example, a lower multiplier could be set for retail properties, or for certain types of industrial properties, thus allowing the government to adjust the tax burden for certain economic sectors. It would also allow the government set different tax burdens for high-street retailers and online retailers, a particular bone of contention for bricks and mortar retailers.
An online sales tax has also been muted, the last Conservative government having consulted in 2021 on the matter responded to arguments that the burden of business rates falls more heavily on high-street retail operations than on out-of-town retail parks and those who sell online.
However, the government ruled out a new tax in the 2022 Autumn Statement, reporting that responses to the consultation indicated that an online sales tax would be too “complex, distortive, and would not raise sufficient revenue to fund the scale of business rate relief stakeholders have called for”. A change made to how rateable values are calculated was favoured by the Tories.
Labour has introduced legislation to allow the government, for the first time, to permanently cut business rates for retail, hospitality and leisure properties.
The government says that to fund this change sustainably, the top one percent of high-value properties, such as large warehouses used by the online giants will be asked to pay more to support the high street retailers.
The draft legislation aims to relieve high-street retail, hospitality and leisure properties from 2026 onwards. High streets across the UK will benefit from the permanent business rates relief following the introduction of legislation in Parliament last November.
The tax cut will be funded by a tax rise for the very largest business properties, such as online sales warehouses. Until then, 250,000 retail, hospitality and leisure properties are to receive 40% relief off their business rates bills up to £110,000 per business to help smooth the transition to the new system.
This support is alongside the October Budget announcement to freeze the small business multiplier, together with Small Business Rates Relief. Taken together, it is a package worth over £1.6 billion in 2025-26.
Craig Beaumont, Federation of Small Businesses Executive Director, said:
“We are pleased to see James Murray and the whole Treasury team take this important step forward today… taking a decisive step forward on business rates reform.”
[Main image credit: Mikhail Nilov]
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