The UK government has today (November 14) introduced legislation that will permanently reduce business rates for retail, hospitality, and leisure properties from 2026, marking the first such permanent reduction in the sector’s history.
The reform, announced as part of a comprehensive package worth over £1.6 billion in 2025-26, will be funded by increasing taxes on the largest business properties, particularly targeting online retail warehouses. This represents a significant shift in policy aimed at levelling the playing field between traditional high street businesses and their online competitors.
James Murray, Exchequer Secretary to the Treasury, emphasized the transformative nature of the legislation: “For too long the business rates system has been working against our high streets. Today is a major step towards our new system that will support retail, hospitality and leisure businesses on our high streets to succeed.”
Key Features of the Reform
Under the transitional arrangements, approximately 250,000 retail, hospitality, and leisure properties will receive a 40% relief on their business rates bills, capped at £110,000 per business. This temporary measure will bridge the gap until the permanent reforms take effect in 2026.
The legislation also includes a significant boost to the Employment Allowance, increasing it from £5,000 to £10,500 from April 2025. This change will benefit 865,000 employers who will be completely exempt from paying employer National Insurance, while an additional 250,000 employers will see reduced payments. The new allowance will enable businesses to employ up to four National Living Wage workers full-time without incurring employer National Insurance costs.
The Federation of Small Businesses has welcomed the reforms. Craig Beaumont, FSB Executive Director, praised the government’s initiative: “For far too long, permanent business rates reform has been put into the too difficult box. It is extremely encouraging on rates to see Ministers standing up for small firms in retail and hospitality and taking long-term action necessary to the future of our high streets.”
Sebastian James, former CEO of Boots and Dixons Carphone, also expressed support for the measures: “It is very welcome to see the Government take steps to rebalance the heavy business rates load on bricks and mortar retail and hospitality… so that our high streets up and down the country can flourish as the centres of their communities.”
Funding the Changes
The government has acknowledged the need to sustainably fund these reforms, particularly in light of a £22 billion fiscal hole and increasing demands on public services. The solution comes in the form of higher tax rates for the top 1% most valuable properties – those with a rateable value of at least £500,000. This primarily affects large distribution warehouses, including those operated by major online retailers.
The reform package includes an increase in National Insurance contributions from businesses, which will help fund the NHS with an additional £22.6 billion over two years compared to 2023/24. This funding is expected to support the NHS in delivering 40,000 extra elective appointments weekly and progress toward ensuring patients wait no longer than 18 weeks from referral to treatment.
The government has also published a discussion paper to engage with businesses over the next six months on potential reforms outside the retail, hospitality, and leisure sectors, demonstrating a commitment to broader business rates reform in line with the needs of a modern economy.