The government has today published draft legislation to, for the first time, permanently cut business rates for retail, hospitality, and leisure properties from 2026.
The move marks the beginning of the delivery of the government’s promise to reform business rates, will benefits high streets across the UK, the government added.
The tax cut will be funded by a tax rise for the very largest business properties, such as online sales warehouses.
Until then, 250,000 retail, hospitality, and leisure (RHL) properties will receive 40 per cent relief off their business rates bills up to £110,000 per business to help smooth the transition to the new system.
This support is alongside the budget announcement to freeze the small business multiplier, together with Small Business Rates Relief protecting over a million properties from inflationary increases. Taken together, this is a package worth over £1.6 billion in 2025-26.
“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,” James Murray, exchequer secretary to the treasury, said.
“This bill paves the way for a permanent cut to their tax rate, helping to level the playing field between them and online and out-of-town businesses.”
The government has also introduced legislation to increase the Employment Allowance – a discount in National Insurance bills – from £5000 to £10,500, meaning 865,000 employers will not pay employer national insurance next year, and 250,000 employers will pay less National Insurance than they are now.
The government said the measure will allow firms to employ up to four National Living Wage workers full time without paying employer National Insurance on their wages.
The eligibility of the allowance will also be expanded to include all eligible employers, rather than just those with a wage bill of less that £100,000 a year.
“We are pleased to see James Murray and the whole Treasury team take this important step forward today – legislating for the significant increase to the Employment Allowance which FSB strongly championed, to protect smaller businesses with employment costs. But also taking a decisive step forward on business rates reform,” Craig Beaumont, Federation of Small Businesses executive director, said.
“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 – we look forward to continuing to work in partnership with the new government to make sure no small businesses whatsoever are blocked from achieving their ambitions by a rates system that has not simply not kept pace with the needs of a modern economy.”
To calculate a property’s business rates bill, the rateable value of a property is multiplied by the relevant multiplier (tax rate). Today’s Non-Domestic Rating (Multipliers and Private Schools) Bill means that new permanently lower multipliers for RHL properties can be introduced from 2026.
The new RHL tax rates will be funded by a higher tax rate for the top 1 per cent most valuable properties – those with a rateable value of at least £500,000. Large distribution warehouses, including those used by online giants, will help fund the high street tax cut, the government said.
A discussion paper has also been published to engage with businesses over the next six months on how to further reform the system outside of retail, hospitality and leisure.
