Labour’s latest attempt to reshape Britain’s tax system has sparked fierce debate, with Chancellor Rachel Reeves’ proposed overhaul of English business rates aimed at shifting the tax burden onto online giants like Amazon. The legislation, which passed through the Commons on Wednesday, promises to reduce costs for high street businesses in England but has left some industry leaders questioning whether it will achieve its goals.
The aim of the new Bill is to shift the burden from retail, hospitality and leisure (RHL) to large online retailers like Amazon, who often inhabit giant out-of-town warehouses. Amazon has a number across the east of England. “This legislation will create a system fit for the 21st century,” says Jim McMahon, Minister of State for Local Government and English Devolution. “It shifts the burden to those who can afford it while giving high street businesses the breathing room they need.”
However, the business rates relief scheme that RHL properties had come to rely on over the past few years is to be reduced from 75% to 40%, and then drop to 0% when the legislation takes effect. Altus Group research highlighted the financial strain smaller businesses could face in the short term as an estimated 250,000 high street properties across England could see their bills temporarily rise by 140%.
Taxing online giants to help the High Street
The ‘Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-25’ is the government’s legislative answer to their manifesto promise to “replace the business rates system”. Business rates, essentially a yearly tax paid by all shops, offices, pubs and warehouses, are a major source of funding for local councils. In order to calculate the tax bill, a property’s yearly rent cost is multiplied by its applicable ‘multiplier’. Since the system was established in 1988, there have only been two multipliers — a standard and small business multiplier — and it’s in this area that Labour proposes reform.
The Bill would allow the Treasury to establish, from 2026 onwards, up to two new permanent multipliers for RHL properties that would be set below the current standard multiplier, essentially lowering the tax bill for small to medium high street businesses. Labour intends to fund this by introducing higher multipliers for properties with a rateable value of over £500,000.
Business groups warn against an “arbitrary” threshold
During the Bill’s committee stage, The Shopkeepers’ Campaign wrote that the £500,000 threshold lacks “clear justification” and “disproportionately impacts larger retail properties, including department stores and other anchor tenants which give the high street its vitality.” It gave evidence to show that almost 4,000 businesses, despite being retail properties, would have to pay more tax under the new scheme.
Similarly, M&S claimed that the new Bill’s approach to target online and out-of-town giants was misleading; it would hit many medium to large high street retailers hard. It added that taxing larger retailers would be a “false economy”, because when these larger high street shops close down, smaller businesses suffer alongside.
The British Property Federation warned that the £500,000 threshold concentrated the tax burden even further, claiming that properties valued above the half a million threshold represented 1% of premises and yet “already pay 30% of all rates – it can’t be right or sustainable to concentrate this even further.”
A step in the right direction?
During the Commons debate on Wednesday, opposition MPs echoed these sentiments, adding that the cut to RHL relief would seriously compound the stress already facing high street properties in England.
But Labour were quick to argue in their defence, pointing out that the upcoming 40% rates relief rate is more than the 0% “cliff edge” relief rate that was looming this April, and still higher than the 33% rate in 2019, the first year of the scheme’s implementation.
McMahon, went on to explain that the £500,000 threshold would not change, as this would reduce the funding of the lower multipliers for RHL properties that “everyone in the Chamber supports”.
He added that local authorities will still be able to apply local discretion to rate bills. These powers would be left in place by the Bill, allowing councils to continue to provide relief where they see fit, including for ratepayers subject to the proposed higher multiplier.
McMahon concluded with a small jab at the opposition. “They support the measures to support high streets, but seem not to support the measures to ensure that premises with a value of £500,000 or more pay more into the pot”, he said.
Private schools lose their relief
The legislation also removes the charitable rate relief for private schools operating as charities. This includes schools for students with special educational needs. In response to concerns raised by several MPs, McMahon was quick to plead for context. Labour estimates that the number of such private schools losing this funding could be in the single figures, and “properties that are wholly used for the training or welfare of disabled people” will continue to receive the existing rates exemption.
The last word
After all was said and done in Wednesday’s debate, it was Labour’s electoral majority that spoke the loudest. The Bill was passed with a total of 341 Ayes to 171 Noes, with none of the opposition amendments adopted. It now travels on to the House of Lords for scrutiny.
Small businesses across England may welcome the news of lower multipliers, but it will be a long wait until their introduction in April 2026, and in the meantime they will likely have to withstand more financial headaches. Whether the changes will successfully shift the balance of power between online giants and bricsk-and-mortar businesses remains to be seen. For now, the high street holds its breath.
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