UK Business Rates Reform: Higher Costs for Large Retailers and What It Means for Consumers

In September 2025, the UK government signalled a major reform of the business rates system, set to take effect in 2026. The reform will raise the property tax burden on large retailers, particularly those with stores valued at over £500,000 in rateable value. While policymakers argue that this will create a fairer balance between online and physical retail, trade associations and consumer groups warn that it could lead to widespread store closures, higher prices, and job losses across the country. This post explains the proposed changes, their potential effects on retailers, and what consumers and small businesses should expect.

Business rates, sometimes referred to as commercial property tax, are a significant cost for UK companies. The British Retail Consortium (BRC) has described the system as “outdated and punitive,” with retailers already contributing a disproportionate share of the overall business rates bill. According to Reuters, up to 400 large UK stores could face closure if the government proceeds with its proposed reforms. This highlights the urgency of understanding the details and preparing for the changes.

📌 Why does the business rates reform matter for retailers and consumers?

What Are Business Rates and How Do They Work?

Business rates are a tax on commercial properties, based on their “rateable value” as assessed by the Valuation Office Agency. Large retailers, supermarkets, and shopping centres often face the heaviest bills due to their high-value premises. Rates are usually recalculated every five years, but recent reviews have accelerated adjustments to reflect market conditions.

Currently, retail accounts for around 25% of the total business rates collected in the UK, despite representing only about 5% of GDP. This imbalance has long been a source of frustration for retailers, who argue that the burden undermines competitiveness, especially against online-only companies like Amazon that pay relatively less in property-based taxes.

• Business rates base: Property rental value multiplied by a multiplier set by the government.
• Frequency: Revaluations now take place every three years.
• Burden: Retail disproportionately bears the cost compared with other sectors.

Who Will Be Most Affected by the 2026 Reform?

The government’s reform targets large stores with a rateable value above £500,000. This includes department stores, major supermarkets, and out-of-town shopping complexes. According to the BRC, many of these businesses are already struggling with rising energy bills, inflation, and shifting consumer behaviour towards online shopping.

By increasing business rates for this group, the government hopes to raise additional tax revenue while protecting smaller retailers through relief schemes. However, the unintended consequences could be severe. Analysts suggest that hundreds of large stores may become financially unviable, especially in towns and cities already affected by declining high streets.

• Department stores such as John Lewis, House of Fraser, and Debenhams’ successors.
• Large supermarkets including Tesco, Sainsbury’s, and Asda.
• Retail parks and shopping centres across regional towns.

💡 What Could This Mean for Shoppers?

Consumers may see direct and indirect effects. Retailers facing higher property tax bills could raise prices to protect profit margins. Alternatively, companies may close underperforming stores, reducing choice for local shoppers. In communities where anchor stores shut down, the ripple effect could lead to fewer jobs and reduced foot traffic for smaller neighbouring businesses.

A recent BRC report warned that up to 400 large stores could close as a direct result of the reform. For shoppers, this means not only reduced access to goods but also longer travel distances to reach alternatives. Vulnerable groups such as elderly people or those without cars may be disproportionately affected.

How Will Small Businesses Be Treated?

To soften the impact, the government has promised extended business rates relief for small and medium-sized enterprises (SMEs). Shops with rateable values below the £500,000 threshold will benefit from discounts or exemptions, helping local high streets stay afloat. Councils will also be given greater flexibility to target relief to struggling town centres.

However, small businesses often rely on the presence of large anchor stores to attract customers. If big retailers retreat, SMEs could suffer indirectly despite lower tax bills. This underlines the interconnected nature of the retail ecosystem.

Expert Opinions and Industry Feedback

The British Retail Consortium strongly opposes the proposals, warning that they threaten jobs and undermine the government’s “levelling up” agenda. According to the BRC, retail has already lost 75,000 jobs since 2019 due to automation and changing shopping habits. Adding further costs risks accelerating this trend.

On the other hand, government Verifieds argue that the reform ensures fairness by asking large profitable corporations to contribute more. The Treasury insists that relief measures will protect small firms, while consumers will ultimately benefit from a fairer distribution of the tax burden across industries.

What Should Retailers Do to Prepare?

Large retailers should begin assessing the potential impact on their property portfolios. Practical steps include:

1. Conduct portfolio reviews: Identify which properties exceed the £500,000 threshold and evaluate closure risks.
2. Explore operational efficiencies: Invest in energy-saving technologies and digital transformation to offset costs.
3. Engage with policymakers: Lobby for transitional support and phased implementation.
4. Communicate with consumers: Highlight the potential impact on local communities to build support.

Small businesses should also prepare by monitoring local council relief schemes and collaborating with larger retailers to sustain footfall. Business associations recommend strengthening digital presence to adapt to reduced physical traffic.

International Comparisons

Other countries, such as Germany and France, also tax commercial property, but their systems often provide greater relief for retailers or link charges more closely to profits. The UK’s reliance on property-based taxation makes it an outlier, contributing to long-standing debates about replacing business rates with a turnover tax or online sales levy.

Without reform, the UK risks falling behind in terms of competitiveness. However, by focusing the tax burden on larger stores, the government aims to create a fairer playing field with online competitors. Whether this succeeds will depend on implementation and the resilience of the retail sector.

Summary of Key Points

• UK business rates reform in 2026 will raise taxes on large retailers with properties over £500,000 in value.
• Up to 400 stores could close, affecting jobs and consumer access.
• Small businesses will receive relief, but may suffer indirectly from reduced foot traffic.
• Consumers could face higher prices and fewer local shopping options.
• Retailers must plan ahead by reviewing portfolios and seeking efficiency gains.

FAQs on the UK Business Rates Reform

What are business rates in the UK?

They are a tax on commercial properties, calculated based on their rateable value. Retailers, especially large stores, pay some of the highest bills.

When will the new business rates reform take effect?

The reform is expected to begin in April 2026, with details subject to final parliamentary approval.

Which retailers will be most affected?

Large department stores, supermarkets, and retail parks with rateable values above £500,000 will face higher bills.

How will consumers be impacted?

Prices could rise, and store closures may reduce shopping options, especially in smaller towns and high streets.

Will small businesses benefit from the reform?

Yes. SMEs will receive relief and potentially lower bills, though they may still be affected indirectly by reduced footfall if larger stores close.