A new analysis from the British Property Federation has found that proposed changes to business rates from 2026/27 would disproportionately impact the UK’s high growth sectors such as life sciences and advanced manufacturing, reduce productivity and could result in the loss of 22,000 skilled jobs.
The economic analysis, which has been undertaken with Avison Young (in association with Chamberlain Walker Economics), models how the changes proposed could impact wider tax revenues, economic output and employment.
In October 2024 the Government announced its intention to introduce a new permanently lower level of business rates for smaller retail, leisure and hospitality properties to support high streets, funded by a higher rate for higher value properties (defined as those with Rateable Value > £500,000). This transition will see a reduction of £1.7bn of Government support, effectively increasing the overall business rates burden by the same amount.
Using an input/output economic analysis, the BPF and Avison Young have found that a £1.7bn increase in business rates would result in £2.3bn in lost economic output as well as a £1.5bn reduction in Gross Value Added, a proxy for productivity. It would also result in a £170m reduction in wider Government tax revenues and a loss of 22,000 jobs.
A separate analysis from Colliers highlights that the impact would be particularly felt by businesses occupying larger industrial buildings. Under the proposals larger distribution warehouses could face an additional £266m annual business rates liability; manufacturing plants could see an £85m increase; and an additional £82m could be levied on businesses occupying warehouses and workshops. The Colliers analysis also finds that larger ‘anchor’ retail properties would be subject to the higher level of tax, with larger retail shops potentially facing an £87m rise and a £228m rise for larger supermarkets and hypermarkets.
Business rates raised £27 billion in 2023/24 with the UK levying one of the highest levels of property tax of any OECD nation.
A recent debate in the House of Lords highlighted the impact the proposed Bill would have on the business rates burden of hospitals, manufacturing sites, offices and some high-street retailers and voted to remove these provisions. The session also emphasised that defining higher value properties as those with Rateable Value over £500,000 is arbitrary and lacks justification.
Rachel Kelly, assistant policy director, British Property Federation, said: “We know that business rates have been a major contributor to the decline of high streets and town centres but as this analysis shows, there is a ripple-effect across the whole of our economy.
“We support the intention to alleviate the tax burden on smaller retail, leisure and hospitality businesses, but the proposal to fund this through a ‘two-tier’ system will simply shift the burden to businesses in high-growth sectors such as manufacturing, logistics and life sciences that occupy large specialist premises and are fundamental to Government’s Industrial Strategy.
“We are urging the Government to look again at how business rates can be modernised so that overall tax burden is decreased not increased and to ensure that we have a system that is simpler and more equitable for all.
“This research shows that further increases to the business rates burden will have an impact on our economy – on growth and jobs – and therefore we strongly support the House of Lords’ calls on Government to publish an impact assessment of these measures without delay – in order to allow proper scrutiny of this Bill.”
