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17/12/25 3:30 pm
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A pub landlord revolt exposed the flaws in Britain’s Business Rates System
The Government’s been forced to make a hasty retreat on the Budget changes to business rates after Labour ministers were banned from Britain’s pubs.
The pubs tax tells you everything you need to know about the condition of Britain’s tax regime with what key figures have dubbed the longest tax code in the world. At a length and complexity, it includes over 20,000 pages in official handbooks - approximately 12 times the length of the complete works of William Shakespeare.
Commercial property tax changes in Rachel Reeves’ 2025 Autumn Budget were met with a wall of fury from the hospitality sector as MPs in both parties, and local communities, became alarmed at the prospect of even more pub closures - roughly one pub a day in England & Wales during 2025, continuing a long-term trend that's seen over 15,000 UK pubs shut since 2000.
The planned rates hike for many pubs, which were triggered by the latest revaluation and the tapering of temporary reliefs, it turns out was political suicide. Consequently, Whitehall has done a swift gear change, promising a new targeted relief for pubs before the rules even come into force. It follows a U-turn on business and farm inheritance tax announced just before Christmas, which farmers and business owners say still does not go far enough.
But this isn’t just a story about pubs, it’s about a tax that businesses say is failing on its most basic level - fairness. Business rates, experts claim, have become the fiscal equivalent of a blunt instrument, which is hitting some sectors disproportionately hard, while rewarding others.
It appears to be leaving governments tied in an endless cycle of short-term patches, making concessions, and like this time, last-minute U-turns. The pub revolt is just the loudest in a host of other objections and, as it would seem, far from producing an acceptable solution. The latest budget changes have only highlighted the underlying problems.
To understand why businesses are angry, why the government finds itself trapped in an unenviable position, with the recent reforms failing to quell the cries across the business sector, you simply need to look at what businesses are being asked to pay.
Business rates are very simple in theory. They are a tax on the rateable value of commercial property, which is updated (revalued) periodically to reflect market rents. But the Treasury mindset presumes that property values always correlate to profitability, when clearly that is not the case.
For some businesses it may be roughly true, but for many, pubs are one example - along with many small retailers, manufacturers in older buildings and logistics hubs – this is patently not true. For these businesses the existing formula simply does not work in a fair way.
Revaluation is at the heart of the problem. When rental values rise, rateable values rise, even if real business profits fall. This is why pubs and small-format high-street units get stung so hard. They occupy assets whose theoretical rental values have held up or increased, but their margins are thinner than ever. A tax based on bricks and mortar, not on the capacity to pay, ends up hammering precisely the businesses that are least able to absorb it.
A major shift began with the statutory three-year revaluation of non-domestic property, next due to take effect from 1 April 2026. The Valuation Office Agency (VOA) assesses properties’ rental values based on an “antecedent valuation date”. In practice that means looking at market conditions nearly two years before implementation. It means the 2026 values reflect market rents from April 2024, a very different environment from the pandemic and earlier relief years.
For pubs and hospitality venues, this is particularly acute. The 2023 revaluation — based on trades during the pandemic — resulted in lower rateable values than might otherwise have applied.
But in the 2026 revaluation, as trade recovered, ratable values for many pubs will reset significantly higher. According to market intelligence providers, Oxford Partnership around 88 per cent of pubs will see higher business rates from April 2026, with the average annual liability rising from around £8,899 to £15,630 — that’s a 78 per cent increase. What’s more, large venues could face increases exceeding 200 per cent.
Leading pub group Greene King was quite blunt about the rates issue last year, it said that pubs generate around 0.4 per cent of all business turnover, yet they shoulder more than 2 per cent of the total business rates burden. When a sector like pubs, operating on very low profit margins, with Britain’s high energy and staffing costs, is hit with such steep rises in rates, it’s not surprising that closures follow.
Pubs are not alone. There are complaints about the business rates system from the wider business community, and they follow the same logic. Large retailers argue the system discourages investment in physical stores, which is leading to an accelerating shift to online. Warehouses benefit from relatively low rateable values, despite their scale, which is just another quirk of using rental values as a proxy for economic capacity.
Manufacturers in older, high-value buildings might face a tax bill that very often has nothing to do with the firm’s output or its employment levels. There’s little wonder the CBI, chambers of commerce and other industry groups have all branded Britain’s business rates system as “outdated” and “in need of root-and-branch reform”. In fact, every Chancellor since Osborne has promised to reform the system but so far nothing has happened.
Business rates are a tax on non-domestic property in the UK. The basic formula is straightforward: rateable value × a multiplier gives the business rates bill. The rateable value (RV) is an estimate of the annual open market rental value of the property (based on a specific valuation date), and the multiplier is a pence-per-pound rate set by the Government. The multiplier is effectively the tax rate — every 1p adds £1 to the annual bill for every £100 of rateable value.
Crucially, the tax doesn’t depend on business profit or cashflow. A business can have declining sales in a particular location and be loss-making and still owe the same amount as a profitable business in a similar property.
Even with specific relief schemes, the average business rate bill has historically been a material amount. Analysis from the British Property Federation suggests that before the latest Budget reform proposals, the average high-street business liability was around £9,800 a year This reflects a 75 per cent reduction as it applied to eligible retail, hospitality and leisure properties in earlier years.
The Government responded to the rating issues with tiered multipliers and support packages. The Autumn Budget 2025 introduced a new, tiered multiplier system aimed at balancing relief for smaller high-street businesses against broader sustainability.
From 1 April 2026 therefore, the retail, hospitality and leisure (RHL) small business multiplier is to be set at 38.2p for RVs under £51,000. Otherwise, the RHL standard multiplier is 43p for RVs between £51,000 and £499,999.
A high-value multiplier of 50.8p for RVs of £500,000+ funded by a premium of 2.8p above national standard. The standard national multiplier is set at 48p for 2026/27.
Smaller hospitality venues benefit from a discount relative to the standard rate. Larger properties such as warehouses, big offices, and city centre retail units pay a premium via the high-value multiplier. Transitional relief schemes worth £3.2 billion over three years aim to smooth the most dramatic increases.
Government estimates indicate that the lower multipliers will deliver approximately £210 million in reduced bills to around 35,000 pubs and nearly £180 million to roughly 30,000 restaurants over the first three years of the new system.
Despite these lower multipliers, when all the sums are done, for many RHL businesses, total business rates revenue is forecast to rise sharply. Analysis from the global tax firm Ryan suggests that total yields will climb from around £33.6 billion in 2025/26 to £37.1 billion in 2026/27, that’s more than a 10 per cent increase.
This counterintuitive outcome reflects the upward reset of rateable values and the withdrawal of previous reliefs which had been as generous as 75 per cent in earlier years. In practice, that means many businesses — including pubs — are still facing higher overall liabilities, even with the new structure and the transitional relief. For larger RHL properties with rateable values above £100,000, Ryan projects a potential doubling of their bills by 2029 under some scenarios once inflation and full revaluation effects are considered.
Small High-Street Pubs and Local Retail
Smaller venues with low rateable values benefit most from the new RHL multipliers and the removal of the old £110,000 relief cap. For pubs with RV under £51,000, the 38.2p multiplier is a meaningful cut compared with the national standard, especially once transitional caps are applied.
Mid-Sized Hospitality and Leisure
Pubs and restaurants with RVs between £51,000 and £499,999 receive intermediate relief via the 43p multiplier — still below standard rates but far less generous than the previous 40 per cent discounted system that applied before 2026.
Larger Businesses and High-Value Properties
The new high-value multiplier at 50.8p — above the standard 48p — means big retailers, urban offices, logistics warehouses and premium hospitality venues will pay more per pound of RV, even after adjusting for lower multipliers elsewhere. Those in London and other high-rent regions face especially steep totals.
This redistribution was intended to fund relief for the high street. But ironically, it also disadvantages other sectors that claim they are already under pressure from rising wage costs, supply chain inflation, energy costs and weak consumer demand.
In their predicament it was always going to be pubs that were the first sector to crack. Their wafer-thin margins, hammered by energy costs, wage rises, beer duty swings and many with post-pandemic debt see this rates threat as the final straw.
During revaluation, many pubs saw sharp increases in rateable value. Combine that with the withdrawal of temporary reliefs introduced during Covid, and some landlords were staring at five-figure increases. A single ITV interview this winter featured a pub owner expecting an extra £20,000 a year — a figure echoed across numerous small operators.
Hospitality lobby groups were blunt: without sector-specific relief, closures would accelerate sharply. And unlike warehouses, distribution centres or back-office operations, pubs are community-facing. Every pub that shuts is a visible indicator of decline, the kind that lands in local newspapers and constituency inboxes. The threat was political dynamite.
Ministers tried to ride it out. They failed. A storm of criticism erupted from trade bodies, the national press, and even Labour MPs, who warned the Government risked “breaking the economic backbone of the high street”.
Within days, the Treasury signalled a rethink. Reuters confirmed that the Government will soften the rates rise for pubs (Reuters, Jan 2026). The Guardian called it a “pub-sector rebellion” that left ministers with no option but retreat (Guardian, Jan 2026).
If the Government targets just one sector – pubs – what about the rest. Giving pubs special treatment might seem convenient but it’s politically dangerous. Once ministers offer this carve-out for the pub sector under pressure, the queue will surely form.
Restaurants and cafés can quite plausibly argue they face the same problems as the pubs — they have similar rents, similar margins, similar post-pandemic pressures. Hotels, live music venues, cinemas are all under pressure. The hotel sector will claim unfairness if pubs get relief, while their own rateable values spike. High-street retailers argue they are at the heart of a wider structural change and deserve concessions as well.
Manufacturers complain that the big distribution sheds are getting favourable valuations while factories in older buildings are being hammered, this is an imbalance made even worse by the new high-value multiplier.
Once the government gives in to relief for one group, it invites a feeding frenzy. The Treasury fears this most of all. Every extra exemption widens the hole that must be filled somewhere else, either by raising rates elsewhere or cutting government spending.
The dilemma is real; if the government wants to help pubs, it must either help everyone or justify why pubs are a unique case, and that will be extremely difficult to do politically.
Pubs it seems have won a temporary reprieve, but the wider economy still faces a tax regime that is unpredictable, distortionary and increasingly indefensible.
The industry has been calling for a business rates overhaul for years and sooner or later the Government is going to have to respond.
Local Government Association (LGA). “Autumn Budget 2025 Briefing.”
British Property Federation (BPF). “Autumn Budget Analysis 2025.”
What impact will the Budget have on business rates?
[Main image credit: Plxabay]
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