Small businesses such as cafes, shops and hairdressers are facing three years of business rates misery with an average 52 per cent hike in bills being piled on in three instalments, new analysis from the Federation of Small Businesses (FSB) has revealed.
The controversial slashing of relief for 230,000 small firms across the retail, hospitality and leisure (RHL) sectors in England, combined with other business rates changes being introduced by the Government from this April, leaves many having to pay thousands of pounds extra.
In a letter to the Government, FSB has urged ministers to deploy the full relief available to them for small firms in RHL. Currently, only a quarter of the potential relief included in the Government’s own formula is being used.
Policy experts at FSB have calculated the combined impact of the loss of the previous 40 per cent discount, a revaluation of the rateable value of premises, and changes to the formula behind the bills, revealing the average rise to be 52 per cent.
For example, a small shop whose rateable value has increased from £16,000 to £19,104 would see its rates bill rise from £4,790.40 in 2025/26 to £7297.73 by 2028/29.
As part of the Government’s changes to the business rates formula, it allowed itself the potential to reduce the multiplier – which is used to calculate bills – by 20p for small RHL businesses.
Yet ministers are only reducing it by 5p, despite it coming at the same time as other rising cost pressures – from energy standing charges to employment costs. Raising it to 20p would bring the relief back in line with the previous 40 per cent discount.
FSB Policy Chair Tina McKenzie said: “Striving small businesses in retail, hospitality and leisure – from bakeries and coffee shops to garden centres, gyms and dry cleaners – are on the brink unless Chancellor makes a decisive intervention now.
“Ahead of the last Budget, the Chancellor led 230,000 small businesses in retail, hospitality and leisure to believe that something akin to their current 40 per cent rates relief would be brought in permanently.
“The reality is the relief will be only a fraction of that, and only a quarter of the potential relief the Government has at its disposal. That needs to change, with the full relief allowance being deployed.
“The tax timebomb that’s currently ticking will see three years of soaring bills, threatening our high streets and the jobs and services they provide. Combined with other cost pressures going up in April as well, the Chancellor has to be realistic that without action on business rates relief, the burden will become too much to bear for some, who will either shrink or close down altogether.”
FSB’s letter to the Government also calls for an increase in the threshold at which business rates kick-in, from its current, frozen, level of £12,000 rateable value to £25,000 rateable value, which would lift more small businesses out of the tax hike.
Victoria Dunthorne, who opened her own cheese and wine shop – Victoria’s Cheese – in Ely, Cambridgeshire, just over a year ago is one of those whose revaluation has pushed her beyond the threshold for any Small Business Rates Relief, and is also losing the 40 per cent RHL relief. That means she’s expecting her business rates bill to soar from £3,500 to £5,800.
She said: “It’s already making me shrink the offering that I give to my customers. I’m heading into year two and I’m not thinking about expanding my hours, increasing my hours. I’m thinking about shrinking them so that my other costs don’t grow as well. Because if you’ve got this standing start cost before you’ve even got any revenue in, then you’re going to be nervous about trying to expand and put extra hours in.
“For businesses like mine the next biggest cost is staffing. So that’s where you’re going to try and recoup some of this extra cost that the Government wants in business rates.”