Budget: Reeves introduces ‘permanently lower’ taxes for retail and hospitality
Chancellor Rachel Reeves has confirmed she will introduce permanently lower business rates for retail, hospitality and leisure firms, paid for by higher levies on big properties.
Retailers have been crying out for business rates reform for years, with concerns that the tax creates an unfair playing field between high street and online firms, which only owe warehouse property taxes.
The Chancellor directly called out online giants in her budget, stating that she would “support our high streets” in a move “paid for through higher rates of properties… like the warehouses used by online giants”.
Business rates receipts for the Treasury are set to be £2.7bn higher in 2029-30, driven by higher property values and the effect on inflation on the business rates multiplier.
The exact rates are yet to be announced, but it is likely that the current business rates relief for retail and hospitality firms – which stands at 40 per cent – will be frozen or permanently set at 20 per cent.
‘Too little, too late’
Mark Smith, managing director Ayming UK, said that while the reforms would be welcomed by the retail and hospitality industry, they would come too late for many.
Retail sales fell at their fastest rate since 2008 in November, while footfall has yet to recover to pre-pandemic levels.
“Retailers continue to grapple with a long spell of weak demand, as households remain cautious around day-to-day spending,” Alpesh Paleja, deputy chief economist of the CBI, said.
An increase in national insurance contributions (NICs) in last October’s Budget hit the retail sector hard, while uncertainty around the upcoming budget, as well as the tail end of a long cost-of-living crisis and the end of business rates relief, has compounded the situation.
The UK’s retail sector has been haemorrhaging jobs, with a 10 per cent reduction in its workforce since 2015 and another 10 per cent set to go in the next three years.
Higher rate to increase grocery inflation
Despite the relief for retail, the higher rate is likely to lead to higher prices for flagships stores, potentially making some shops “unprofitable” and “at risk of closure”, according to Alison Conley, head of retail at MHA.
Supermarkets – with their razor-thin margins – are particularly at risk, according to analysts.
“The rise in the living wage and stubborn food inflation, in addition to higher National Insurance from the last Budget, means costs continue to mount for supermarkets, where margins are already slim,” Conley added.
Pinsent Mason’s head of commercial, Clare Francis, said that “business leaders have two key options: look to pass on costs to consumers, or apply pressure on their supply chains to reduce costs”.
“Supply chains remain vulnerable following the disruptions prompted by Brexit and Covid, making unilateral cost-cutting a high-risk strategy,” Francis.