Chancellor commits to explore pro-growth tax reforms to support small businesses opening new premises
Small businesses could find it easier to expand and employ more people, thanks to government commitment to make business rates fairer.
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Small businesses could find it easier to expand premises following government commitment to make business rates fairer
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Interim report gives Chancellor blueprint to reform business rates to incentivise investment, a manifesto commitment
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Currently when a business opens a second property they lose access to all Small Business Rates Relief - government is reviewing these ‘cliff edges’ which have been holding back growth
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Comes as part Chancellor’s intention to reform the business rates system to incentivise growth and build an economy that rewards working people.
HM Treasury has published a report today (11 September) setting out that the Chancellor will explore fixing sudden jumps in business rates - known as “cliff edges” - that can discourage small business investment and growth. This is one option in the business rates interim report.
Currently when a business opens a second property, they lose access to all Small Business Rates Relief (SBRR), holding businesses back from expanding.
That means that a local bakery would have to pay thousands of pounds more for opening a small shop in the next village. The report confirms that the government will review how SBRR can support business growth, potentially lifting growth and living standards in the future for those who work in these small businesses.
The report comes as the Chancellor sets out her intentions to go further on legislation to cut red tape and deregulation to drive growth.
This week the Chancellor issued a letter to cabinet ministers stressing the importance of government taking action to reduce inflation and reduce the cost of living, keeping a tight control of public spending through the non-negotiable fiscal rules and go further in kickstarting economic growth for all parts of the country.
Chancellor of the Exchequer, Rachel Reeves, said:
Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission. We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape.
Tax reforms such as tackling cliff-edges in business rates and making reliefs fairer are vital to driving growth. We want to help small businesses expand to new premises and building an economy that works for, and rewards working people.
As announced at Autumn Budget 2024, from April 2026, there will be permanently lower tax rates for retail, hospitality and leisure properties - including shops, pubs, and restaurants. Full details will be announced at the Budget on 26 November 2025.
In the meantime, the government is already helping small businesses by:
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Giving 250,000 retail, hospitality and leisure businesses, including shops, pubs and restaurants, 40% off their business rates.
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Freezing the small business multiplier to protect against inflation.
The government will also consider other ways to improve support for businesses that invest in their premises, and to make the business rates system easier to engage with, especially following the merger of the Valuation Office Agency with HMRC. Options being considered are changing the way the tax is calculated to minimise cliff-edges and enhancing Improvement Relief. The government will provide a further update at the Budget.
The government will be conducting further engagement with stakeholders about these options to improve the system.
Business groups have welcomed the changes, saying they will help small firms invest, create jobs, and grow.
Kate Nicholls, Chair of UKHospitality, said:
For too long, the broken business rates system has unfairly punished hospitality businesses and I’m pleased that the government is taking action to reform it.
These measures to remove punitive cliff-edges and barriers to investment are positive and will help to rebalance the system, as will the government’s commitment to lower business rates bills for hospitality businesses.
Shirine Khoury-Haq, Co-op Group CEO, said:
Small, local shops are the lifeblood of communities. Today’s announcement on business rates reform is a welcome step forward, and we fully support the changes which will enable small and medium sized retail, hospitality and leisure businesses to invest, drive growth, and better serve their local communities.
We welcome plans to enhance Small Business Rates relief because of the value this will provide to the thousands of local stores which we wholesale to, and we have long said that businesses should be incentivised rather than penalised for investing in their stores.
Most importantly, these reforms are vital because they will benefit 98 percent of shops across England which make up the backbone of high streets and shopping parades, playing a crucial role in local economies and local communities. They create jobs, foster connections, and build resilience. To succeed, these reforms must now be backed in the Autumn Budget, with the multipliers set to deliver a fairer system that protects smaller, community-focused retailers.
Tina McKenzie, FSB Policy Chair, said:
Improving business rates is really important for small businesses and it is a useful step to put this interim report out to encourage business-government dialogue. It’s incredibly welcome that the Chancellor has recently taken the powers she needs to improve the system for small firms and the high streets while keeping within her fiscal rules. Of course, the proof will be in the pudding at Budget – but we very much hope that Ministers deliver a big result for small firms.
Aaron Asadi, CEO of small business support platform and membership community Enterprise Nation, said:
Getting that second shop – that second set of keys – has for too long been too hard. The recommendations set out in today’s interim report are the kind of changes small businesses have been calling for. Current business rates have too often acted as a barrier to investment and growth.
We strongly welcome the Chancellor’s commitment to tackle cliff edges, move from a ‘slab’ to a fairer ‘slice’ model, and enhance Small Business Rates Relief, all priorities we have highlighted in our submissions to government. Extending Improvement Relief to reflect real investment cycles is also vital.
Our 145,000-strong community of founders and freelancers need stability, predictability and plain-English clarity on their bills. If these reforms are delivered well, they could give small businesses the confidence to invest, expand and revitalise high streets across the UK.
Louise Hellem, CBI Chief Economist, said:
The CBI welcomes this interim report as a significant step forward in the long-awaited reform of the business rates system. The government is right to prioritise tackling cliff-edges, which have long acted as a brake on investment and growth across the economy. We particularly welcome both the commitment to explore a slice-based system and options for improving investment incentives - such as enhancing improvement relief as put forward by CBI members.
It’s also encouraging to see the emphasis on improving rates administration, building on the merger of the Valuation Office Agency with HMRC, which could make the system more accessible and efficient for business.
Further information
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Business groups have also advocated to change how business rates is calculated. Currently the whole property value is taxed at the highest rate. The report confirms that the government will consider moving to a system where the tax rate increases gradually to support business investment and expansion.
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The permanently lower tax rates for retail, hospitality and leisure properties - including shops, pubs, and restaurants are for properties with rateable value of less than £500,000.
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See the full Business Rates Interim Report.
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Photos from the Chancellor’s visit will be uploaded to the Treasury’s Flickr account.