Why Labour’s promises on business rates reform are falling flat

The UK retail sector was wooed over to Labour in the general election campaign last year, not least by the party promising meaningful and lasting business rates reform.

At one point, the official stance of the Labour party in full campaigning mode was that it would abolish the hated tax once and for all.

While abolishing business rates didn’t survive contact with government, Labour in power has continued to commit itself to “reforming the business rates system to create a fairer system that supports high streets, investment and is fit for the 21^st Century”.

Despite all the positive noises coming out of a Labour No.10 and Treasury, the sector is increasingly concerned that the government’s actions do not match their words.

For all the soaring rhetoric, Labour’s main impact on business rates was pushing through a new piece of legislation in January which effectively increased the tax burden for bigger retail, hospitality and leisure businesses by slashing rates relief from 75% to 40% – which came into effect in April 2025.

While Labour has sold this change as a blow for smaller businesses against big business and “online sales warehouses”, retailers and sector lobbying groups both argue that all Labour has done is increase the tax burden on most of the UK’s largest private sector employers.

So, ahead of the interim report and the autumn Budget later in the year, Retail Week looks at what the current state of business rates is now, where UK retail’s hopes for meaningful business rates reform are, and why Labour isn’t going as far or as fast in government as they promised in opposition.

More red tape

According to insiders and experts, any retailers hoping for meaningful indications of business rates reform in this summer’s interim report are set to be disappointed.

“The interim report is going to deal with issues arising from the most recent period of consultation (which lasted between April 8 and June 2, 2025), not to do with any new reform,” says one source at the British Retail Consortium.

“It’s about more of the slightly boring, but important things – everything arising from the previous discussion paper. So, Valuation Office Agency revaluation review the different thresholds for business rates, digitising that process, those sorts of things. That’ll be coming sometime this summer.”

At Labour’s now infamous autumn Budget in 2024, the government also placed a new £500,000 rateable value limit for lower business rates which will come into effect from April 2026 – with lower multipliers for properties below this value, and higher multipliers for those above.

“What comes now is we’re trying to find out what will happen for those above the new thresholds,” the source goes on. “The government has built it, but what new rates can retailers above that threshold expect?

“We’ve spent a lot of time lobbying government to convince them not to put retail into the £500,000 bracket. Some in government are listening, and even certain people are wholly convinced. But there are still the needs and the economic situation of the country which provides the challenge to that happening”.

While no one is doubting the fiscal problems facing the UK state, head of ratings at Colliers John Webber still believes that Labour have overpromised to retailers and under delivered when it comes to business rates reform.

“I had a call the other day with the Treasury. What has dawned on them pretty quickly since Labour has entered No.10 and No.11 Downing Street is that they haven’t got the money to do what they want.

“All the things that they promised or thought they could do for whatever reason, they’re now thinking they can’t do. Frankly, I think they’ve basically boxed themselves into a corner. They keep saying they’ve got a lot more work to do on business rates. Some of those things are positive, but I think in the end they’re going to end up doing more harm than good in the end.”

Pennies and pounds

Governmental approach to business rates reform hasn’t changed much then, even if the party in power has. The Treasury’s approach to rates reform has always been a revenue neutral one – in that any changes to the tax must raise the same amount of money.

Labour and career civil servants in the Treasury may well argue that the changes they have made to business rates are in line with the party’s mandate to both stimulate economic growth while also looking after smaller businesses and working people.

However, experts like Webber argue that increasing tax on the largest employers and businesses in the retail sector is the direct antithesis of Labour’s pro-business, pro-growth agenda.

“If you look at the ratings list, you’ve got 21.5 million properties in the list. Of that, 700,000 don’t pay anything, but no one wants to look at that or address that. Labour keep saying they need to give small businesses more help. But they’ve already given smaller businesses a lot of help, and I’ve never met a small business who said that they shouldn’t pay a penny.

“However, I’ve met plenty of larger businesses who say they shouldn’t be paying 55p in the pound in tax.”

Webber’s solution would be for all the parties to agree on a roadmap, regardless of who is in government, to getting the headline business rates tax figure back to somewhere around 35p in the pound and then get rid of a lot of the reliefs to bring more properties, and therefore more businesses, into the revenue stream.

“If we got there, you’d get a lot more retailers in the UK and abroad who would be willing to invest in more properties and to expand their estates,” he says.

For lobbying groups like the BRC though, meaningful reform looks less ambitious, but also less fanciful.

“There are two things we want,” says the BRC source. “A meaningful reduction in business rates and on other retail, hospitality and leisure properties. And ensuring that no shop pays more in the top business rates threshold, which in turn would mean no other hospitality or leisure business pays more”.

Either way, the picture is unlikely to be any clearer when the interim report is published this summer. All eyes then will turn again to the autumn Budget later this year, less in hope but in expectation that things will likely get worse before they get better.