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11/12/25 3:00 pm
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Business rates are one of the most consistently hated taxes in the UK. For commercial tenants they are a high fixed cost, payable regardless of profits, often vying with the rent as their highest cost.
For landlords they shape tenant demand, rental values, long-term asset value and a severe drain on cash flow when units are vacant. For governments they are an awkward, complicated but indispensable source of revenue.
The Autumn Budget represents the latest attempt to cobble together reforms and stabilise a system that has been kept alive for years by repeated short-term interventions.
To understand what has changed — and what has not — it is essential to understand how business rates work, how relief has evolved over time, and why root and branch reform has proved so politically difficult.
Business rates are a tax on non-domestic property, applying to shops, offices, warehouses, factories, pubs and most other commercial premises. They are charged on the occupier rather than the landlord, though landlords pay them on vacant properties, after a short rate-free period. This is a significant risk for small-scale landlords.
Unlike most other taxes, business rates are not linked to turnover, profitability or economic performance, they are a flat rate regardless of the performance of the occupying business.
A business making losses can pay the same rates bill as a highly profitable neighbour occupying similar premises. This seeming unfairness rests at the heart of the long-running criticism of the system.
Rates are collected by local authorities, but they are actually a national tax. Local billing authorities administer the system, but policy, multipliers and reliefs are set centrally.
The basic calculation is quite simple. Each commercial property is given a rateable value (RV) by the Valuation Office Agency, representing the estimated annual market rent the property could achieve at a certain valuation date.
That rateable value is multiplied by a “multiplier”, a figure set annually by government, to produce the rates bill: Rateable value × multiplier = business rates payable
But in practice, the final bill payable is adjusted by a complicated web of reliefs and adjustments: (1) Small Business Rates Relief, (2) Retail, Hospitality and Leisure relief, (3) Transitional relief following revaluations, and (4) Various other sector-specific exemptions.
While technically precise when first introduced, the system now has become increasingly complex, making future liabilities difficult to predict for occupiers and landlords alike. But more recently business rates relief adjustments have become a permanent feature of Budget changes.
The Valuation Office Agency (VOA) updates the rateable value of business properties at intervals to reflect changes in the business property market. The most recent revaluation came into effect in England and Wales on 1 April 2023. This valuation was based on what it cost to rent a property for a year on 1 April 2021. The next revaluation will come into effect in England and Wales on 1 April 2026. This revaluation will be based on the cost to rent a property for a year on 1 April 2024.
Since the credit crunch of 2008-10 successive governments have increasingly used business rates relief as a lever of policy. Initially, this took the form of modest reliefs for small businesses during economic slowdowns.
However, the 2017 revaluation was a turning point which marked sharp increases in business rates for parts of London and the Southeast which triggered a political backlash. The temporary solution was “enhanced transitional relief” and targeted support. From that point on, business rates were no longer a simple static tax but a mechanism for political adjustment.
The pandemic fundamentally changed the business rates landscape significantly with the government’s emphasis switching to helping businesses survive. Entire sectors received 100 per cent business rates relief overnight. From that point on, what began as emergency support has gradually evolved into annual Budget defined extensions for retail, hospitality and leisure reliefs at varying levels.
Following the pandemic and the growth of online shopping, by the early 2020s, large parts of high streets became no longer economically viable without rate relief. The support for selective business sectors was no longer a temporary measure used for crisis management, but it had become a structural feature.
Despite the repeated rumours of root and branch reform of the business rates system during the prolonged run-up to the Autumn Budget, the result was a tweaking of the basic calculation structure. Instead of continuing with annual relief changes, the government has decided to change the system itself by changing the multipliers for smaller retail, hospitality and leisure properties.
It is not something that will materially alter what businesses end up paying, rather an attempt to tidy up a system of reliefs that had become administratively complex - an admission that the stop-start relief model had become fiscally and administratively unsustainable.
There will be lower permanent multipliers for smaller properties from April 2026. These will apply to retail, hospitality and leisure properties below specific rateable value thresholds. The idea is to replace the constant cycle of temporary reliefs that had to be renewed each year.
For occupiers (tenants), in theory it brings greater certainty. For landlords, it should marginally improve tenant affordability and therefore reduce the risk of vacancies in secondary and marginal locations.
Conversely, there are to be higher multipliers for the larger properties To fund these reductions for smaller premises, the Budget introduces a higher multiplier for properties with rateable values above £500,000. This will affect large stores, supermarkets, flagship retail units and major distribution centres, many of which are involved in online supplies.
Politically, this has been touted as rebalancing what has long been criticised as an unfair system removing the burden away from the struggling high street and towards large operators, including the online retailers. In practice, it should capture a wide range of property types, many that are under pressure from declining footfall.
Where revaluations and changes in multipliers produce sharp changes in liability, the Budget also includes a multi-year transitional relief package which caps bill increases for businesses losing existing relief or facing sudden rises caused by revaluation.
- Multipliers for the Current 2025-2026 Year
For the financial year running from April 1, 2025, to March 31, 2026, the multipliers are:
Additionally, eligible retail, hospitality, and leisure (RHL) properties receive a 40% discount on their bills for this period, capped at £110,000 per business.
- Multiplier Changes for the 2026-2027 Year (Announced in the 2025 Budget)
The Autumn Budget introduced a new, permanent system of five different multipliers, which will come into effect from April 1, 2026, following the latest revaluation of property values.
The new multipliers are designed to shift the business rates burden from the high street to higher-value properties like large warehouses, and are as follows:
Multiplier Category
Rateable Value (RV) Threshold
2026-2027 Multiplier
Small Business (non-RHL)
Below £51,000
43.2p
Standard (non-RHL)
£51,000 to £499,999
48.0p
Small Business (RHL)
Below £51,000
38.2p
Standard (RHL)
£51,000 to £499,999
43.0p
High Value (all sectors)
£500,000 and above
50.8p
For more details, businesses can use the GOV.UK tool to estimate their future bills or refer to the specific guidance provided by their local councils and the GOV.UK Budget 2025 document.
One of the most misunderstood aspects of business rates is, who actually benefits from the revenue? Business Rates are billed and collected by local authorities, but councils do not keep what they collect. Since 2013, England has operated a business rates retention system.
Under this system local authorities retain a share of business rates growth. The core funding levels are still set by central government and tariffs and top-ups are used to redistribute the income between areas with strong or weak tax bases
In practice this means that those councils with large commercial tax bases contribute to the system, while others receive support. Where central government announces business rates relief, either through discounts, multiplier changes or transitional relief, local authorities are reimbursed in full by central government.
Business rates raise tens of billions of pounds annually for government, central and local meaning they are one of the largest property-based taxes in the UK which the Treasury depends on.
For the Treasury, they are dependable because they are stable, predictable and difficult to avoid. Unlike some other taxes like corporation tax or income tax, being of a fixed nature, they do not collapse during downturns. This reliability explains why governments of all stripes promise root and branch reform but quietly preserve it.
For local authorities the stability of this business rates income is vital and the reason why they are deeply cautious about radical alternatives such as online sales taxes or land value taxes. Any replacement would need to replicate the stability of the current system.
High street businesses, typically the smaller retailers, pubs and leisure operators are the intended beneficiaries of the Budget changes. Lower permanent multipliers will reduce fixed costs and remove annual uncertainty over changes to relief extensions.
However, any changes will bring modest savings for most businesses relative to wider cost pressures the businesses have to contend with. Rates reform alone will not reverse structural changes in consumer behaviour, for example the switch to online shopping taking footfall and business away from the high street.
Large retailers and anchor tenants face higher exposure to business rates and cost increases. For some town centres, increasing costs for these anchor tenants risks accelerating decline rather than preventing or reversing it. Online retailers and warehouses operating out of distribution centres have traditionally had lower business rates costs compared to high street premises.
The changes will to some extent “level the playing field” as they will now face higher bills. However, the reform does not go as far as some traditional retailers would like, that is to impose a direct online sales tax.
For landlords, the impact will be felt. Tenant affordability, especially from small-scale operators should see a marginal improvement assisting lease negotiations and asset values, whereas for the larger premises the reverse will be true. The very large premises / operators will carry the biggest burden.
Property agent Savills writes:
“While the reduction could be presented as good news, the annual multiplier remains high and most businesses will still end up paying more in rates, either next year or in subsequent years, due to rising rateable values and new supplements added to the bills of larger properties.”
The Autumn Budget does not fix business rates. What it does do is acknowledge that the system had been surviving on continuous, complicated and temporary changes, governments juggling interventions in an attempt each year to stabilise a rocky system without jeopardising public finances.
The business rates system remains economically flawed but indispensable to stable government funding. Rates relief has been shifted from an annual emergency measure to a more permanent mechanism, as the system was originally conceived.
For landlords, investors and occupiers, business rates will continue to be a high fixed cost and therefore will shape commercial property market values. This is not because they work well, but simply because the government cannot afford to do without the revenue they provide.
[Main image credit - photo by ELEVATE]
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