Business Rates Surge Pushes UK Hospitality to Breaking Point

“Business rates” are the swear phrase of the day today for many businesses on our high streets. They went up yesterday.

In the budget last year, the Chancellor promised to make the system fairer for hospitality and retail firms. Top of Form

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But revaluations of the rateable value of properties, means that the bills of thousands of firms went up yesterday. For hotels they’ve gone up by an average of £29,000. That’s an increase of almost a third. Customers asked to pay a third extra for a room may well decide the stay isn’t worth it. The business rate bill for the average restaurant rose yesterday by 15 per cent today. And that’s not the end of it because rates are rising in stages until 28/29.

A group of trade associations for hospitality businesses are saying that two-thirds of them will be forced to cut jobs and one in seven will shut as a direct result of “suffocating” April tax rises. More than half will cancel investment plans and 4 in 10 will reduce trading hours, according to a survey of more than 20,000 businesses. As many as 70 per cent of business leaders in the industry would refurbish and develop their sites if their tax burden fell, and nearly half would create new jobs. Isn’t that what we need instead of pushing our hospitality sector over the cliff.

Photo by Artur Kraft on Unsplash

On top of business rate rises, there’s the new national living wage and national minimum wage rates will add £1.4bn per year to hospitality businesses’ costs, according to the trade associations including UKHospitality and the British Beer and Pub Association (BBPA).

MPs were barred from pubs across the country last year by angry pub landlords and as a result the Government promised help. That led to £300m in emergency relief for pubs but no help for hotels and restaurants. Tourism depends on hotels and restaurants as well as our world-renowned pub sector. It is one of the UK’s largest and most economically significant sectors, supporting millions of jobs and generating 5% of GDP, bringing in £147Bn a year (according to VisitBritain).

Why then is the Government not keen to follow through on its manifesto promise to make the Business Rates system fairer? Perhaps it’s because, after council tax, business rates are the cash cow that’s keeping our almost insolvent Local Authorities open for business?

What are business rates used for:

They’re a local tax on non‑domestic properties (shops, offices, warehouses, salons, care homes, factories, etc.). They’re collected by local authorities and the money ultimately supports local public services and national redistribution.

1. Funding Local Services (Primary Use)

• Social care (adult and children’s services)

• Waste collection and recycling

• Libraries and community centres

• Local roads, street lighting, and transport

• Environmental health and trading standards

• Planning, licensing, and business support services

• Community safety and local policing partnerships

For many councils, business rates are one of the largest sources of income after council tax.

2. Redistribution Through the National Business Rates System

Although councils collect the money, they don’t keep all of it.

The government redistributes business rates nationally to:

• Equalise funding between richer and poorer areas

• Ensure councils with fewer commercial properties still have enough money to run services

• Support national grants and local government funding settlements

This means a business in London may indirectly help fund services in a rural or coastal area, and vice versa.

3. Supporting Local Economic Growth

A portion of business rates is used to:

• Fund Local Enterprise Partnerships (LEPs)

• Support town centre regeneration

• Invest in business support programmes

• Improve local infrastructure that benefits employers and workers

Some councils also retain a share of business rates growth under the Business Rates Retention Scheme, giving them an incentive to attract and support businesses.

4. Funding Reliefs and Discounts

Business rates revenue also covers the cost of:

• Small Business Rate Relief (SBRR)

• Retail, hospitality and leisure relief

• Rural rate relief

• Charity and community amateur sports club relief

• Enterprise zone discounts

These reliefs reduce the burden on small and micro businesses, but the cost must be funded from the wider business rates system.

5. National Government Programmes (Indirectly)

While not directly earmarked, business rates contribute to the overall funding pot that supports:

• National public services

• Local government grants

• Programmes like the Plan for Small Business

In short business rates fund:

Local services

Care, roads, waste, libraries, planning, environmental health.

Redistribution

Balancing funding between councils across the country.

Economic development

Town centres, business support, infrastructure.

Reliefs and discounts

Helping small and micro businesses reduce their bills.

Labour’s manifesto included a pledge to reform the business rates system, and hospitality leaders are calling on the government to deliver on its promise.

Pubs and restaurants are also bracing for increases on their energy bills due to the war in Iran, with independent firms set to be hit hardest because they are less likely to have long-term fixed-price energy contracts.

Energy costs a concern before Iran war

Even before the Iran war broke out, spiking fuel prices, 93 per cent of hospitality firms said their energy costs were hampering their profitability.

The trade associations – which also include the British Institute of Innkeeping and Hospitality Ulster – are calling on the government to immediately reverse some of the tax hikes facing hospitality.

As many as 70 per cent of business leaders in the industry would refurbish and develop their sites if their tax burden fell, and 46 per cent would create new jobs.

The trade bodies said: “Yet again, hospitality businesses enter April facing billions of pounds in additional costs, which will force many to make heartbreaking decisions.

“Even before the conflict in Iran and the Middle East began, increasing energy prices were already impacting profitability and the Government should be prepared to support vulnerable businesses if they are thrown into yet another crisis.”