‘A rare moment of common sense’ as Chancellor moves on business rates cliff edges

Experts claim small firms were handed “a rare moment of common sense” after HM Treasury published a report today revealing 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 being considered in the business rates interim report.

The review will look at how Small Business Rates Relief works when a company opens a second site. According to the Treasury, firms currently lose SBRR the moment they add another property, which can turn a modest move into a costly leap. The report cites the example of a local bakery facing bills running to thousands more if it opened a small shop in the next village.

Scott Gallacher, director at Leicester-based Rowley Turton, said the shift is overdue: “This is a rare moment of common sense from the government. Britain is often described as a nation of shopkeepers, but outdated business rate rules have held back those shopkeepers from becoming true entrepreneurs. Finally, some good news for UK small businesses. Hopefully, this is just the start of a growth reset for UK plc.”

Chancellor Rachel Reeves set the tone, saying: “Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission.” She added: “We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape.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.”

Others warned that any overhaul will create winners and losers because business rates raise significant revenue. Samuel Mather-Holgate, independent financial adviser at Swindon-based Mather and Murray Financial, said: “Successive governments have been well aware of the unfairness in the business rates system, but it's a massive revenue raiser for the Chancellor, so redistributing the income will involve losers as well as winners, and that won't sit well with businesses that already think they are paying too much. Although business rates are in need of a restructure, most businesses are pleading with the Chancellor to look again at employers' National Insurance as it's this that is killing off growth for businesses desperate to expand.”

There are wider tax headwinds too, according to Ross Lacey, director and independent financial adviser at Rayleigh-based Fairview Financial Management. He said: “Anything to help encourage small and medium-sized businesses in the UK would be welcome. An obvious move could be to reconsider Corporation Tax rates, which were previously at 19%. Now, even a small, family-run business making modest profits will pay 26.5% tax on any profits above £50,000. After being taxed within the business, those profits are then taxed again personally when taken out of the business by the owners. Add this to the increase in Employers' National Insurance and the introduction of the Employment Rights Bill and it's no wonder business owners are more cautious, and less optimistic about expanding or hiring more staff.”

For Eamonn Prendergast, chartered financial adviser at Bromley-based Palantir Financial Planning Ltd, the current rules “are like a tax trapdoor”. He said: “Business rates cliff edges are like a tax trapdoor; one step too far and small firms are hit with bills they can’t sustain. No wonder many hesitate to expand, even when demand is there. Smoothing these jumps would give local shops, cafés, and start-ups the confidence to grow without fearing financial freefall. With GDP growth stuck in the doldrums, fixing this distortion should be top of the Chancellor’s list to give business and the economy the boost it so badly needs.”

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 the 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 going further in kickstarting economic growth for all parts of the country.