BUSINESS RATES Is the criticism fair?

Chris Grose

Chris is a Director in the Hartnell Taylor Cook Business Rates Team.  He is also Junior Vice President of the Institute of Revenues, Rating and Valuation (IRRV) and serves on the IRRV National Council. Hartnell Taylor Cook LLP is on multiple public sector frameworks including, but not limited to, the Central Government Agency's Estate Management Services 2 including Lot 6 Rating, and Homes England’s Property and Financial Professional Services Framework Lot 1 including Valuation Services. Please contact Kate.Flaherty@htcre.co.uk (Director of Public Sector) for more information.

Chris argues that the current system of business rates is efficient, and counters all the arguments put forward by dissenters. 

History and evolution 

Hardly a week goes by without someone criticising the business rates system. However, many criticisms come from those with vested interests, including rating agents, politicians and trade bodies.

The current system was introduced on 1 April 1990, after there had been no revaluation since 1973 and no national rate in the pound. Each billing authority set its own rate, and the government considered that some were charging businesses excessively because they had no vote, while keeping domestic rates lower.

The non-domestic system was changed with a revaluation based on rental values as at 1 April 1988 and a single rate in the pound of 34.8p. Domestic rates were replaced by the community charge, later replaced by council tax in 1993. Council tax has had no revaluation since, except in Wales in 2005, although further revaluations are now being considered in Wales and Scotland.

The 1990 revaluation immediately created large increases for some businesses, leading to transitional relief. Since then, problems have often been addressed by adding further reliefs, leaving a system with reliefs

layered on reliefs.

Business rates remain an efficient tax. In 2025–26, billing authorities collected £27.8bn, or 96.8% of the amount due, compared with £42.9bn in council tax, a 95.6% collection rate. Critics therefore need to identify an equally efficient alternative.

It also has the advantage that the liability is, in principle, formula based. Reliefs and multiple multipliers have made the calculation more complex, but the amount owed can still be calculated. 

Despite this, the system has faced repeated reviews:

2014 Business Rate Review

2020 Fundamental Review of Business Rates

2024 Transforming Business Rates

The 2024 review is notable because the Labour government had proposed abolition in its manifesto, but instead pursued further reform.

Announced changes include moving from five-year to three-year revaluations, the Check Challenge Appeal process, the forthcoming duty to notify, a longer empty rate reset occupation period, lower multipliers for retail, hospitality and leisure, higher multipliers for high-value properties, capped increases for pubs, and a review of slab versus slice multipliers.

As I write, Keir Starmer has resigned and we await a new Labour leader. Andy Burnham has suggested raising the small business rates threshold from RV £12,000 to £18,000, tapering relief to £21,000, and exempting single-site shops, cafés and restaurants. He proposes funding this through higher taxes on online tech giants and warehouses, and by reducing avoidance.

Will this address the criticisms? Of course not. It is another round of tinkering that will create further problems.

The faults with this proposal are:

• A single-site business expanding to a second property would pay rates on both, discouraging growth

• Increasing small business relief does not remove cliff edges as businesses move out of relief

• For pubs, the issue may be historic underassessment rather than current unfairness

• It increases pressure on other ratepayers who must fund it

• It does not address the system’s main concerns.

What remains unclear is what the true criticisms are and whether they can be addressed at all.

The concerns

The main concerns appear to be:

• The level of the tax is too high

• The rents its based on are historic

• The requirement for a revaluation to be cost neutral makes predicting rates difficult

• It’s unfair on property intensive businesses

• Empty rates are a burden

• The assessments are incorrect.

Taking each in turn:

Level of the tax 

The current multipliers are:

England	2025–26	2026-27	Comment
Small business RHL multiplier		38.2p*	Retail, hospitality leisure (RHL) hereditaments under £51,000
Standard RHL multiplier		43p*	RHL hereditaments with RVs between £51,000 and £499,999
National small business multiplier	49.9p	43.2p*	Non-RHL hereditaments with RV under £51,000
National standard multiplier	55.5p	48p*	Non-RHL hereditaments with RVs between £51,000 and £499,999
High-value multiplier		50.8p*	All hereditaments with RVs of £500,000 or above
* There is a 1-year, 1p supplement to rate bills for those not receiving transitional relief nor the supporting small business scheme not shown in these figures

The initial UBR in 1990 was 34.8p, so the government can say one 2026/27 multiplier is lower than 1990/91. But there is now a wide gap between the lowest and highest multipliers, and local additions such as Crossrail and City of London supplements can take the rate for large city hereditaments to 56p. It is therefore misleading to imply that ratepayers are paying less than in 1990.

The yield from business rates is intended to rise by inflation, with the rate reset at revaluation. The fact that most multipliers are now well above the 1990 level suggests the total value of the Rating List has not kept pace with inflation, meaning average rental values have lagged behind, which raises a question - why invest in property.

Reducing the rate in the pound or giving sector-specific relief reduces government yield, which must be recovered elsewhere. A council tax revaluation with retention could be one controversial option; a Land Value Tax, as suggested by Andy Burnham, would bring its own challenges.

The rents are historic

The antecedent valuation date is set two years before a Rating List comes into force. That lag appears long, but there are practical reasons. Ideally, the draft List and multipliers would be published at least six months in advance, so ratepayers can budget and raise serious errors. Government then needs time to calculate the rate in the pound, while the Valuation Office must value around 2million properties, gather and analyse rents, produce valuation scales, and complete manual valuations. Rental evidence can only be collected once leases are agreed and reported.

The lag might be reduced to around 18 months, but probably not much less.

Views on the lag depend on the rental market. If rents are rising, ratepayers benefit; if rents are falling, they object. It is unsurprising that retailers have led arguments about historic dates and delays.

Unfair on property intensive businesses 

Retail and hospitality businesses need premises, so argue that business rates are unfair because they pay a larger share than other sectors. But this is not straightforward. Offices, for example, are now often fully occupied only Tuesday to Thursday, yet still pay rates for seven days a week.

Industrial uses occupy around 3.5 times as much space as retail, but rates per square metre are much lower. Since rateable values are based on rents, if retailers are paying too much, the underlying issue may be rent levels rather than the rates system itself.

Lower multipliers for particular classes may simply support higher rents and, over time, higher rateable values.

The high street versus online retail issue is difficult, especially because many national retailers now operate both physical and online businesses, and may end up paying twice.

Empty rates

Empty rates burden ratepayers but also raise revenue. Properties are rarely kept empty deliberately to support rents and capital values. They are usually empty because:

• There is no demand from a suitable tenant

• They are being let, a process that can take around a year

• They are awaiting redevelopment.

Landlords cannot let to just anyone; they need tenants with a track record or viable business plan. Some units clearly have very limited demand but still attract rates based on the rent they might achieve if let. The Supreme Court decision in Telereal Trillium v Hewitt has contributed to this position, although as expressed in the Upper Tribunal in the same case, the real answer may lie between 100% of occupied value and £0. Until that is tested, full rates discourage investment.

Agency colleagues advise that letting a unit will take around a year from marketing to lease commencement, assuming it lets at all. The legal process is now often the main delay.

Redevelopment also takes time, particularly where full site possession or planning consent is unresolved. Empty rates can make otherwise viable schemes uneconomic.

A solution should preserve some revenue while limiting avoidance. Full time limited exemptions encourage mitigation, so my preference would be 50% liability throughout the vacant period.

Assessments are incorrect 

This criticism is often raised by rating agents and industry bodies. Some argue that a higher proportion of successful proposals proves assessments are wrong, but the change may reflect the Check Challenge system reducing spurious proposals.

Individual ratepayers often cannot judge whether their assessment is correct because they lack comparable evidence. The current system also encourages late proposals, as there is only one opportunity and new evidence is difficult to introduce later. Programming proposals for similar properties in the same location could help by encouraging coordinated discussion between occupiers, agents and the Valuation Office.

Conclusion

There are elements of the system that could be reformed, but the necessary changes are fairly minor. They do not justify major alterations or the claim that the system is broken. The system raises a significant amount of tax revenue at a relatively low cost, with a high collection rate. If there was a simple alternative, then it would have been introduced by one of the reviews.