The government has announced plans to fix sudden jumps in the business rates system which currently make it prohibitively expensive for many small business owners to open a second premises.
HM Treasury has published the business rates interim report, setting out plans to fix so-called cliff edges in the business rates system that can discourage small business investment and growth.
Currently, when a business opens a second property, it loses access to all Small Business Rates Relief (SBRR). It means that a local bakery would have to pay thousands of pounds more in business rates to open a second shop.
“We know that a first move towards expansion - which can often simply mean a move out of their home, van or garage and into business premises - can be make or break for small businesses, 50% of which fail in the first three years. Our research shows that tax is the number one concern for ambitious micro-businesses so the last thing these businesses need is additional and at times, arbitrary costs, from business rates.” Rich Wagner, ceo, Zempler Bank.
The report comes as chancellor of the exchequer Rachel Reeves sets out her intentions to go further on legislation to cut red tape and deregulation to drive growth.
“We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape. Tax reforms such as tackling cliff-edges in business rates and making reliefs fairer are vital to driving growth. We want to help small businesses expand to new premises and building an economy that works for, and rewards working people.” Chancellor of the exchequer Rachel Reeves.
From April 2026, there will be permanently lower tax rates for retail, hospitality and leisure properties with a rateable value of less than £500,000. Full details will be announced at the Budget on 26 November 2025.
Reaction to the business rates reforms
Commenting on the plans, Aaron Asadi, ceo of Enterprise Nation, said: “Getting that second shop - that second set of keys - has for too long been too hard … We strongly welcome the chancellor’s commitment to tackle cliff edges, move from a ‘slab’ to a fairer ‘slice’ model, and enhance Small Business Rates Relief, all priorities we have highlighted in our submissions to government. Extending Improvement Relief to reflect real investment cycles is also vital.”
Tina McKenzie, policy chair at the Federation of Small Businesses (FSB), said: “It’s incredibly welcome that the chancellor has recently taken the powers she needs to improve the system for small firms and the high streets while keeping within her fiscal rules. Of course, the proof will be in the pudding at Budget - but we very much hope that ministers deliver a big result for small firms.”
Are business rates fundamentally flawed?
However, while business groups have welcomed the changes, many are calling for the government to do more. Jonny Haseldine, head of business environment policy at the British Chambers of Commerce (BCC), said: “It’s encouraging that the government is willing to explore a slice system alongside a commitment to reducing cliff edges around Small Business Rate Relief. But the reality remains that these are tweaks around the edges of a Business Rates system that is still fundamentally flawed.
“We need a permanently lower multiplier of 45p for all businesses by the end of this parliament, regardless of sector … In the longer term, we need a system that encourages growth and investment. It must be more responsive to the local and wider economic cycles and allow greater investment back into the local areas where it is paid.”
Small businesses across the UK are now awaiting the Autumn Budget on 26 November to find out exactly how the reformed Business Rates system will affect them.
Written by Rachel Miller.