Reeves plots £1.7bn tax on businesses

Telegraph

12-07-2025

Rachel Reeves is plotting a £1.7 billion tax raid in the autumn which retailers have warned will accelerate the decline of high streets.
The Chancellor will use her next Budget to increase business rates for department stores and supermarkets as she looks to plug a £5-billion hole in the public finances left by about-turns on benefits and winter fuel cuts.
Businesses with bigger premises will be charged more, in order to reduce the rates paid by smaller stores. Ministers say the effective discount will target online retailers and save independent firms.
The Treasury has not decided the new rates, but business sources are concerned that Ms Reeves will set any surcharge on bigger properties at the maximum possible.
The plans prompted a backlash from large retailers that were already dealing with the increase in employers' National Insurance contributions announced by the Chancellor last year.
They warned that the fresh tax raid would ultimately end up costing the Treasury more, because more properties would be left vacant and paying no rates.
Marks and Spencer is spearheading a fight-back among Britain's major brands, who have told ministers the new shopping tax will force them to put up prices.
In evidence submitted to Angela Rayner's department, which oversees the local councils that collect business rates, M&S warned that 111 of its branches would be hit with higher bills because of the changes, and could be forced to close.
'Given larger retailers are often anchor tenants on the high street, taxing them to support smaller stores is a false economy – if larger shops close, smaller shops suffer,' it said.
'The proposed reforms could therefore accelerate the decline of the high street by encouraging retailers to close larger high street stores.'
It comes after the Office for Budget Responsibility issued a damning verdict on the state of the public finances, warning that Britain was living beyond its means.
Sir Keir Starmer vowed in the Commons last week that Labour would not break its manifesto commitment to not raise income tax, VAT or employee national insurance.
His remarks have led to fears that Ms Reeves, who has repeatedly refused to rule out another tax-raising budget, is set to launch a fresh raid on industry.
Downing Street has quietly given itself powers to significantly hike business rates by forcing legislation through the Commons in the face of opposition.
Ministers passed a bill in April which allows them to levy a 'surcharge' of up to 10 pence in the pound on properties with a rental value of £500,000 or more per year.
The Treasury said that the proceeds would be used to fund permanently lower rates for retail, hospitality and leisure firms based in smaller premises.
Fears of job losses
However, retailers fear that jobs will be lost as a result of the higher rates forcing stores to close.
New analysis for The Telegraph also revealed that job losses caused by the raid would fall the hardest in areas where Labour was under pressure from Reform UK.
M&S said the tax raid would affect its stores 'particularly in areas where young people are struggling to find jobs' like the West Midlands and North East.
The company also criticised ministers for 'misleading' the public by claiming that the surcharge was primarily aimed at taxing online giants.
Ministers have argued that the increase would only apply to 1 per cent of properties, framing it as a wealth tax.
Official records show the raid will impact nearly 17,000 business premises, but only around a fifth of those are warehouses used by internet retailers.
The tax will instead reach into almost all areas of the economy, putting up bills for firms ranging from breweries and pubs to golf courses and theme parks.
Hotels, restaurants, theatres, tourist attractions, zoos, cinemas, caravan parks, flour mills, creameries and cement works will all also be captured.
Wimbledon, where the annual tennis championships conclude on Sunday, could face an extra £1.3 million-a-year bill as a result of the changes.
John Webber, the head of business rates at property firm Colliers, said ministers had been 'disingenuous' in claiming the reforms would help the high street.
'It beggars belief how the Government's plans will help if they lead to reduced investment and expansion or even employment opportunities in these bigger high street stores,' he said.
'Some may even close down. And this is not just in London. It will be all over the country.'
Multiplier system
Business rates are based on a 'multiplier' system. This involves taking the estimated annual rental value of a property and multiplying it by a charge set by ministers.
Currently the standard multiplier for premises with a rental value of more than £51,000 is 54.6 pence in the pound, while smaller venues pay 49.9 pence.
Retail, hospitality and leisure firms are then given 40 per cent off their bills, up to £110,000, under a relief which costs the exchequer £1.7 billion a year.
The system will change from next year, with the relief scrapped and replaced with a lower multiplier rate for properties with a rateable value under £500,000.
The Chancellor has said the move will be paid for by a surcharge on more valuable premises, shifting the cost from the Treasury onto businesses.
It has been estimated that to raise the £1.7 billion needed to leave smaller firms no worse off, Ms Reeves will have to set the surcharge at eight pence in the pound.
But there are fears within retail that, given the dire state of the public finances, she may look to use the reforms to introduce a new stealth tax.
Ms Reeves could potentially save several billion pounds if she set the surcharge at the maximum level of 10 pence and the discount at less than 20 pence.
'It's a genuine risk because they're really fiscally constrained,' an industry source said. 'There would be scope for them to raise more than they need, which is concerning.'
'Carnage on the high street'
Kate Nicholls, the Chair of Hospitality UK, warned ministers they must deliver the 20 pence discount in full or face 'carnage on both on the high street and in retail'.
She said: 'If they're looking for more money you cannot come back to the high street and have another bite at the cherry. If they do, they'll tax us out of existence.'
Seven major retailers – M&S, Asda, Morrisons, Primark, Sainsbury's, Tesco and Kingfisher, the B&Q owner – have banded together to oppose the raid.
They have been joined by Usdaw, the Labour-affiliated union for shop staff, which has warned the reforms risk causing huge job losses among its members.
In a joint letter sent to Ms Reeves last month they warned that the plans would 'negatively impact the jobs market' and create a 'cycle of economic downturn'.
Andrew Griffith, the shadow business secretary, added: 'Labour have broken their manifesto promises to lower business rates on bricks and mortar.
'Combined with Rachel Reeves's toxic jobs tax, Angela Rayner's stealth tax is going to force up prices and lead to more shop closures.'
Ms Rayner's constituency in Ashton-under-Lyne, near Manchester, would be hit: an M&S store, a Sainsbury's and an IKEA there would all face big bill rises.
Analysis shows that Labour currently holds 24 of the 30 constituencies which have the highest proportion of people working in retail.
Most are marginal seats where the party is battling Reform, with a recent poll showing that Labour is currently on course to hold just 10 of them.
Changes 'may push up food prices'
Retail bosses warned the changes also risk pushing up food prices because supermarkets in particular operate on slender profit margins.
Helen Dickinson, chief executive at the British Retail Consortium, warned: 'Food inflation is rising again, putting pressure on the cost of living for millions of households.
'The situation for customers could become a lot worse if thousands of supermarkets and other large shops are landed with the Government's new higher business rates multiplier.
'If we want to support the high street and avoid higher prices for customers, the Government must ensure no shop pays more as a result of the business rates reforms.'
It is understood that ministers have privately indicated to the industry that they could yet exempt retail or hospitality businesses from the surcharge.
Those businesses are pushing Ms Reeves to carve them out and make up the cash by levying a higher surcharge on warehouses and office blocks.
A Treasury spokesman said: 'We are a pro-business Government that is creating a fairer business rates system to protect the high street, support investment, and level the playing field.
'To deliver our manifesto pledge and provide certainty and support to the high street we intend to introduce permanently lower tax rates for retail, hospitality, and leisure properties from next year.
'Unlike the current relief for these properties, there will be no cash cap on the new lower tax rates, supporting some of Britain's most loved high street chains to continue to create jobs and grow the economy.'