Chancellor says economy ‘stuck’ as Treasury reviews business rates cliff edges

The Chancellor has said the UK economy feels “stuck” as she revealed plans to consider business rates reforms including removing “cliff edges” for small firms.

The Treasury is looking at changes to the current system of business rates – the tax on UK business properties – as part of efforts to cut red tape and improve growth.

In an initial report into business rates, the Treasury said it would consider overhauling small business rates relief rules which “can discourage” expansion and investment.

The current rule means that when a company opens a second property, it loses access to all small business rates relief unless it meets specific criteria.

It comes as part of the Government’s commitment to review business rates more widely amid mounting calls from firms and business groups for wholesale reform of the system.

It is understood bosses of major high street firms, such as John Lewis, met with Chancellor Rachel Reeves last week and encouraged a shake-up of current business rates rules.

Firms saw business rates bills increase earlier this year after an original 75% discount on rates payments for hospitality, retail and leisure firms was reduced to 40% in April.

The Government said it will also consider other ways to improve business rates following the merger of the Valuation Office Agency with HMRC.

It said it is considering changing the way the tax is calculated to further minimise cliff edges and enhancing improvement relief given to businesses who invest in properties.

Ms Reeves said: “Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission.

“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.”

Kate Nicholls, chairwoman of UKHospitality, said: “For too long, the broken business rates system has unfairly punished hospitality businesses and I’m pleased that the Government is taking action to reform it.

“These measures to remove punitive cliff edges and barriers to investment are positive and will help to rebalance the system, as will the Government’s commitment to lower business rates bills for hospitality businesses.”

British Retail Consortium chief executive Helen Dickinson said the business rates system is “outdated, overly complex and economically damaging”, and she welcomed Government ideas for reform.

She said: “But for retail businesses, the most pressing question is how the Government’s plan for a permanent business rates reduction for retail, hospitality and leisure premises will be implemented.

“Currently, retailers account for 5% of the economy yet pay over 20% of the total business rates bill, which is why such reforms are desperately needed.

“Until we get clarity on these changes, which isn’t expected until the Budget, many local investments in jobs and stores are being held back.”