Reeves Faces Backlash Over £1.7 Billion Business Rates Overhaul

Retailers warn of ‘carnage’ as Chancellor’s autumn Budget plan targets large high street stores

Chancellor Rachel Reeves is facing mounting criticism from some of the UK’s most prominent retail giants following plans to introduce a £1.7 billion reform to business rates in her upcoming autumn Budget. The proposed changes, which are designed to shift the burden away from small high street businesses and towards large premises, have sparked fears of job losses, shop closures, and what some have described as “carnage” on the high street.

Under the new proposals, businesses operating from larger premises—particularly department stores, supermarkets, and warehouse-sized outlets—could face significantly higher business rates. This would help fund tax reductions for smaller retail, hospitality, and leisure venues, as the Treasury attempts to rebalance the system in favour of independent and community-based businesses.

The Treasury argues that the reforms will create a “fairer” system, one that favours smaller, often family-run operations over vast, multinational companies, especially online giants who have historically paid less in business rates. However, retail leaders are warning that the changes could backfire, causing widespread store closures and further damage to already struggling town centres.

A Divisive Strategy

At the heart of the Government’s plan is a surcharge on commercial properties with a rental value of £500,000 or more annually. Legislation passed in April gives ministers the power to apply a surcharge of up to 10 pence in the pound for such properties. This is part of a broader strategy to fill a gaping £5 billion hole in the public finances—one that has been exacerbated by recent U-turns on welfare policies and winter fuel subsidies.

Chancellor Reeves has insisted that the surcharge is a necessary move to protect smaller traders from rising operating costs. However, she has stopped short of confirming exactly what level the surcharge will be set at, leading to speculation that she may opt for the maximum rate of 10 pence in the pound to generate as much revenue as possible.

Retail groups and trade bodies have expressed alarm at the potential fallout. Marks & Spencer (M&S), one of Britain’s largest and most iconic high street brands, has emerged as a vocal opponent of the proposals. The company has warned that 111 of its stores would be directly impacted by the tax hike, potentially forcing closures and reducing employment opportunities in many parts of the country.

“Larger retailers are frequently anchor tenants that attract footfall to town centres,” M&S wrote in a detailed submission to Deputy Prime Minister Angela Rayner, whose department oversees local government and business rates collection. “Penalising them in order to provide relief to smaller units is counterproductive. If we close, the small independents around us lose traffic too.”

A Threat to Labour’s Retail Heartlands

The political implications of the proposed reforms are equally significant. Analysis commissioned by The Telegraph indicates that many of the areas most likely to be impacted are in Labour strongholds—particularly marginal seats where the party faces growing pressure from Reform UK.

Of the 30 constituencies with the highest concentration of retail employment, Labour currently holds 24. Many of these are located in economically vulnerable regions such as the North East, the West Midlands, and parts of Greater Manchester. Reeves’ own parliamentary allies, including Angela Rayner, may find themselves under scrutiny from within their constituencies if local stores face rising bills and job losses.

A trio of major retailers—M&S, Sainsbury’s, and IKEA—each with outlets in Ashton-under-Lyne, Rayner’s own seat, are expected to be hit hard by the new surcharge. In their joint response, the retailers and their associated unions warned that the measures risk creating a “cycle of economic downturn” in regions already struggling with limited employment opportunities.

Usdaw, the Labour-affiliated retail workers’ union, has also joined the chorus of concern. The union, which represents thousands of shop floor staff, has publicly opposed the plans, stating they would “negatively impact the jobs market” and disproportionately affect communities that rely on high street employment.

‘Stealth Tax’ Accusations and Concerns About Scope

One of the most significant criticisms of the planned reforms is that, despite being framed as a way to tax online giants, the majority of the burden will fall elsewhere. Official records suggest that while nearly 17,000 properties will be impacted by the surcharge, only around 20% of these are warehouses or fulfilment centres operated by online retailers.

The remainder includes a vast range of industries: supermarkets, high street chains, department stores, tourist attractions, hotels, cinemas, zoos, theatres, restaurants, golf courses, caravan parks, creameries, flour mills, breweries, and even cement works.

“Government ministers have been disingenuous in their messaging,” said John Webber, head of business rates at property consultancy Colliers. “They’ve implied this is about making Amazon pay its fair share, but it will actually punish bricks-and-mortar businesses across nearly every sector.”

Perhaps most strikingly, even cultural and sporting institutions could be hit. Wimbledon, home of the world-renowned tennis championships, is expected to face an additional £1.3 million per year under the changes.

Economic Ramifications

The impact of the reforms on food prices is another concern. Supermarkets typically operate on tight profit margins, and industry leaders warn that any additional tax burden will likely be passed on to consumers.

Helen Dickinson, Chief Executive of the British Retail Consortium (BRC), said: “Food inflation is once again on the rise, placing further pressure on the cost of living for households across the UK. Adding to the tax burden on supermarkets could compound this, especially at a time when families are already struggling.”

The BRC has urged the Treasury to ensure that no business pays more as a result of the new system. “If the goal is to support the high street, taxing the most visible and visited parts of it seems entirely counterintuitive,” Dickinson added.

Industry sources have also warned that the Chancellor may be tempted to use the reform as a ‘stealth tax’, exceeding the revenue needed to cover relief for small firms. By setting the surcharge at the maximum 10 pence and introducing a discount of less than 20 pence for smaller premises, the Treasury could potentially generate billions more than required.

“It’s a real risk,” said one source. “Public finances are in such a dire state that anything bringing in more revenue will be seriously considered. But it comes at a cost—and that cost will be jobs, investment, and store closures.”

How Business Rates Work

The business rates system is based on a multiplier model, where the rateable value of a commercial property—effectively its annual rental value—is multiplied by a figure set by the Government.

At present, businesses occupying properties with a rateable value above £51,000 pay a standard multiplier of 54.6 pence in the pound. Smaller premises pay a slightly reduced rate of 49.9 pence.

Retail, hospitality and leisure firms currently benefit from a 40% discount on these rates, up to a cap of £110,000. This relief costs the Exchequer around £1.7 billion annually.

Under the planned reforms, this relief will be scrapped from next year. Instead, a lower multiplier will be introduced for properties with a rateable value below £500,000. Larger properties, however, will shoulder a new surcharge, shifting the financial burden away from the Treasury and directly onto businesses operating from larger sites.

To maintain neutrality—ensuring smaller firms are not financially disadvantaged—the Government will need to generate at least £1.7 billion from this surcharge. Current estimates suggest this would require setting the new levy at approximately 8 pence in the pound. However, if the surcharge is increased to the full 10 pence and the discount for smaller firms is scaled back, the net yield could be far higher.

Retailers Unite in Opposition

A coalition of the UK’s largest retailers—including Tesco, Asda, Sainsbury’s, Morrisons, Primark, and B&Q-owner Kingfisher—have united in opposition to the reforms. In a rare show of unity, they have signed a joint letter to the Chancellor warning that the surcharge could trigger a wave of store closures and job cuts.

Kate Nicholls, Chair of Hospitality UK, described the potential outcome as “carnage on the high street.”

“If they’re looking for more revenue, they must not come back to the same well,” she said. “This sector is still recovering from COVID, grappling with inflation, and facing higher wage bills. Another tax grab could finish many of us off.”

Pressure Mounts on Reeves and Rayner

The backlash from retailers has created an early test for Chancellor Reeves, who is already under pressure to demonstrate Labour’s economic credibility. With Prime Minister Keir Starmer having pledged not to raise income tax, VAT, or employee national insurance, the Chancellor is left with limited options to raise revenue.

Shadow Business Secretary Andrew Griffith accused the Government of betraying its election promises: “Labour has broken its pledge to reduce the business rates burden on bricks-and-mortar retailers. Combined with the Chancellor’s jobs tax and Angela Rayner’s stealth levy, this will result in more store closures and higher prices.”

Yet, amid the growing criticism, there are whispers from within Government that exemptions could still be made. Sources suggest that ministers may consider excluding certain sectors—particularly retail and hospitality—from the surcharge altogether and instead increasing the rate applied to warehouse and office-based properties.

Treasury Response

In a statement, a Treasury spokesperson insisted that the reforms are rooted in fairness and the need to revitalise the UK’s high streets:

“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 system, there will be no cash cap on these new lower rates—supporting some of Britain’s most-loved high street chains to continue creating jobs and growing the economy.”

Conclusion: A High-Stakes Gamble

As the autumn Budget approaches, all eyes will be on Chancellor Reeves. The proposed business rates overhaul is shaping up to be one of the most contentious reforms of her tenure. While the intention—supporting smaller businesses and creating a level playing field—is laudable, the execution may risk undermining the very economic stability it seeks to protect.

The Government must tread carefully. If the surcharge proves too onerous for larger businesses, the result could be a cascade of closures, job losses, and ultimately, even less revenue for the Exchequer. And with so many communities across the UK dependent on the vibrancy of their local high streets, the political ramifications could be profound.

In attempting to rebalance Britain’s broken business rates system, Reeves faces a formidable challenge—one that will test not only her fiscal resolve but also her political judgement.