Chancellor Rachel Reeves has admitted the UK economy “feels stuck” as she pledged reforms to business rates in an effort to boost growth and ease pressure on high street firms.
Speaking ahead of her first Budget in November, Reeves said cutting red tape and tackling unfairness in the current system was part of her “number one mission” to get the economy moving again.
Business Rates Under the Spotlight
The Treasury is reviewing how business rates are calculated and applied. At present, firms that open a second property risk losing all small business relief unless they meet specific criteria — a rule critics say discourages expansion.
Reeves said she wants to remove these “cliff edges” that stop small firms from growing. She added: “Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission. 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 build an economy that works for, and rewards, working people.”
The changes could offer some relief to retailers, hospitality venues and leisure businesses, which saw bills rise in April when a 75 per cent discount on rates was cut to 40 per cent.
Budget Looms With £50bn Hole
Reeves is under pressure to set out a credible plan when she delivers her first Budget on 26 November. Treasury insiders warn that a shortfall of up to £50 billion in the public finances could force further tax rises.
Her admission that the economy feels “stuck” comes after Labour’s decision to raise national insurance contributions earlier this year, a move business groups described as a “tax raid.” Reeves is now seeking to convince firms that Labour’s long-term approach will support growth rather than stifle it.
Pressure From the High Street
Reeves met senior retail bosses last week, including executives from John Lewis, who pressed her for a rethink on business rates. Many high street firms argue the system is outdated and unfair, pointing out that they face higher rates than their online competitors.
The government has said it will also look at enhancing “improvement relief” to encourage businesses to invest in their premises, and at smoothing out sharp jumps in tax liabilities following property revaluations.
Industry Reaction
Business groups cautiously welcomed Reeves’s announcement.
Kate Nicholls, chief executive of UKHospitality, said: “For too long, the broken business rates system has unfairly punished hospitality businesses and I’m pleased 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.”
Helen Dickinson, head of the British Retail Consortium, said the system was “outdated, overly complex and economically damaging.”
She added: “Retailers account for 5 per cent of the economy yet pay over 20 per cent of the total business rates bill. That’s why reforms are desperately needed. Until we get clarity on how the government’s plan for a permanent reduction will be implemented, many local investments in jobs and stores are being held back.”
Balancing Growth and Public Finances
The challenge for Reeves is how to push ahead with reforms while also managing a widening gap in the public finances. Any cut to business rates will leave a hole in government revenues, forcing her either to find savings elsewhere or to raise other taxes.
Critics warn that Labour risks sending mixed signals: promising support for business while raising taxes to fund public services. But Reeves insists that reform is part of a broader plan to put the economy back on a sustainable path.
“The priority is growth,” she said. “We want to back working people and the small businesses at the heart of our communities.”
Key Takeaway
Rachel Reeves’s promise to reform business rates sets the stage for a difficult balancing act at November’s Budget. Business groups want swift change, but with the Treasury facing a huge financial shortfall, the Chancellor will have to show how she can deliver relief for the high street without creating new holes in the public finances.
