There is a growing suspicion that Chancellor Rachel Reeves has completely botched the reform of business rates. Since her autumn Budget last month, it has emerged that giants such as Harrods, Selfridges and Greggs stand to save millions of pounds a year while smaller hospitality sector rivals face sharp increases in their rates – negating the Chancellor’s boast of a “new golden era for hospitality”.
It is almost as if Reeves has inadvertently cast herself as an agent of “creative destruction” in the hospitality industry, as recently suggested by investor Luke Johnson as a means to eliminate the surplus capacity he identifies as one of the sector’s challenges.
In her Budget speech, the Chancellor insisted the new tiered business rates system would deliver “the lowest tax rates since 1991” for pubs, shops and restaurants, with “permanently lower tax rates for over 750,000 retail, hospitality and leisure properties”.
Analysis by UK Hospitality shows this is far from the case. Instead, the smallest hospitality properties with a rateable value below £51,000 face a 13% rise in business rates in 2026/7, followed by 38% in 27/28 and 58% in 28/29 – with the overall tax take quadrupling in three years from £38.6million to £168.5million. For the average pub, business rates will increase by 76%, and for the average hotel by 115%. This falls dramatically to 16% for distribution warehouses used by online giants, and 4% for large supermarkets.
Robert Lee, a small-scale restaurateur on the south coast who is also a property consultant, says large multi-site operators will be the main beneficiaries because of changes to the “multiplier” applied to business rates. So while the rates on his small restaurant in Southsea will increase next year, national giant Greggs will benefit from a £15,000 drop in their bill for three outlets in nearby Portsmouth city centre – rising possibly to £13million across the 2,600 Greggs sites around the country.
“The issue I have is that the government say they are supporting the smallest businesses but this is not the case,” Robert says. “This socialist government is so inept that it is creating policy that benefits big business and screws the little man – it is as if it wants unemployment to rise!”
Meanwhile, the Telegraph reports that tax specialist Ryan Tax has calculated that the business rates bill for Harrods is expected to fall by £1.1m between 2025-26 and 2026-27, while Selfridges will pay £622,000 less for its Oxford Street shop.
UKHospitality chair Kate Nicholls said: “It’s outrageous that two luxury retail stores are receiving cuts to their business rates running into the millions of pounds, while hard-pressed local pubs, neighbourhood restaurants and coastal hotels are seeing their bills significantly increase. This is a damning example of how the business rates system has not been reformed in a way that delivers the government’s intention to level the playing field to benefit hospitality businesses. The eye-watering increases to business rates that many hospitality businesses are seeing risk further closures and job losses and need to be urgently addressed.”
Shortly before the Budget, the Chancellor’s own office issued a release identifying micro-breweries and family-run cafes as the type of businesses that would benefit from a “crackdown on needless form-filling” potentially saving £6billion a year. But – in a possible clue to Reeves’s thinking – the most notable business boss to endorse her announcement was the UK manager of global behemoth Amazon, John Boumphrey, who announced plans to create “well-paid, quality jobs across every region of the UK” in the next three years.
It’s not just the little guys who are up in arms. More than 80 pub group chief executives, representing most of the country’s largest pub chains, say the Chancellor has “deeply misled” the industry over business rates reform, promising relief but delivering an additional £160million annual tax burden.
In the restaurant sector, prominent chef/restaurateurs Clare Smyth in London and Tommy Banks in Yorkshire – both of whom are currently in expansion mode and actively recruiting staff – have added their voices to condemnation of the budget. They say the increases in business rates combined with rises in the minimum wage and National Insurance Contributions will cost employment opportunities. Tommy Banks added that four out of every five jobs lost in the current climate are in hospitality – echoing UKHospitality’s prediction that hospitality will lose 100,000 jobs next year, in addition to the 100,000 already lost as a result of the 2024 Budget.
For all that, hospitality remains an enormously resilient industry. As Luke Johnson notes (and he sees it as a problem for the sector), when a catering premises closes it tends to reopen as another catering premises – unlike the situation in retail. If a restaurant fails for whatever reason, the likelihood is that the owner/chef will try again and hope for better luck next time.
When launching the 2026 Harden’s London guide, our editor Peter Harden pointed out that the number of good-quality restaurants in the capital had grown this year at a rate only exceeded by four other years in the past 35 – fuelled in part by a growth in both population and tourism. This was despite a widespread “gloomsterism” in the face of National Insurance rises, post-Brexit visa issues, post-pandemic knock-ons, ever-greater employee protections and above-average food price inflation all making it harder than ever to balance the books.
He said: “The number of quality restaurants that remain open in the capital is a positive sign that speaks to the tenacity and resourcefulness of those operating in the sector and clearly results in people still being prepared to invest in opening new ones.”
But there are also reasons why operators value London openings beyond pure profit. For many hotels, property developments and shopping areas, encouraging restaurant openings through favourable terms makes sense as a gloss to their overall offering. For private equity firms, London is a cradle of invention and a proof of concept for brands that may find a global following. For international chains, London is a necessary stopping-off point.
These same beneficial conditions often don’t exist beyond the M25. Will the industry there be able to ride out these latest challenges without disastrous losses? Or will the Chancellor recognise that she needs to review business rate reforms that have patently missed their target? Perhaps making pariahs of her fellow MPs at their local boozer will provoke the necessary jolt for a rethink.