I have been having, all week, more or less the same telephone conversation with hospitality clients. It begins with a polite catch-up about the Easter trade.
It moves, after about ninety seconds, to the 2026 rates revaluation, which has, by some grim miracle, managed to fall on the same set of operators who have already been hit hardest by every other policy of the last five years. It ends, almost without exception, with the client saying some version of: “We may have to think about closing the Whitechapel site.” Or the Bristol site. Or the Edinburgh site. Or the High Wycombe site. The town moves; the sentence does not.
Business rates, in this country, are the levy nobody talks about until they are paying them, after which they are the levy nobody can stop talking about. They are the property tax on commercial premises that has, against all logic, become a sort of operational tax on the use of bricks and mortar in the productive economy, while the warehouse-and-fulfilment side of the same economy, Amazon, Ocado, the third-party logistics estate that fulfils the Boxing Day shopping, pays a fraction. We have, in essence, set up a tax system that subsidises the click and penalises the visit.
The 2026 revaluation, in its full and ugly bloom, has now landed. Pubs and restaurants, on the new ratings, will pay an average of 14 per cent more than they did. Hairdressers, dry cleaners and the residual high-street independents are paying between 9 and 19 per cent more. Hotels in central locations have been hit by between 18 and 26 per cent. The promised multiplier reform, which Labour campaigned on in 2024 and which has been the subject of three consecutive rounds of consultation, has not been delivered; the small-business multiplier remains slightly lower than the large, but the gap is too narrow to do meaningful work, and both have been ratcheted up by inflation.
Meanwhile, the same revaluation has handed substantial cuts to two categories: out-of-town warehouses, where land values, on the very technical basis used by the Valuation Office, have come off slightly; and the central London prime office estate, which, despite hybrid working, retains a bizarrely generous treatment in the new schedule. The very part of the economy that sucks employment out of high streets and fulfilment out of independent retailers has had its tax bill cut. The very part of the economy that we keep claiming to want to nurture, the visit, the room, the table, the till, has had its tax bill loaded.
This is not, I should say, a partisan complaint. The architecture of the British rates system is bipartisan in its absurdity, and every Chancellor since Geoffrey Howe has, with an air of regret, added another wrinkle. It is the perfectly imperfect example of a tax system that has been reformed for so long that nobody can now remember what it was originally for. The historic rationale, that local rates funded local public goods such as roads and lighting, has, for forty years, been replaced by a national pool, redistributed by the Treasury, with predictably poor results.
What, then, is to be done? Several things. First, the simple and overdue: a 12.5 per cent VAT band for hospitality, paid for in the medium term by the broadening of business rates to the warehouse and fulfilment estate. Second, the radical: a serious proposal to abolish business rates altogether and replace them with a simple commercial-property land value tax, which the Henry George Society is, at this point, almost too tired to keep proposing. Third, the boringly fundamental: a return to a meaningful local share of the rates collected, so that town councils have a direct interest in the prosperity of the businesses on their patch, and not merely a planning interest in their square footage.
Each of those proposals has been on the table for, at minimum, two decades. Each of them has been studied to death by a sequence of cross-Whitehall reviews, with the result that we have a vast, multi-volume archive of policy work and, on the ground, the same broken tax. The reason it does not change is the same reason any tax does not change: the people doing well out of the present arrangement are organised, articulate and represented; the people doing badly out of it are exhausted, dispersed and busy.
But the price of the present settlement is, finally, becoming visible. Closures of independents are at a record. Hotel occupancy in regional cities is below pre-pandemic levels. The high-street vacancy rate, as I wrote last week, is at 14.2 per cent. None of these numbers are sustainable in the medium term, and none of them will be reversed by another speech about “high-street renewal”. They will be reversed only by structural reform of the rates system. We are, after twelve years of rotating Treasury reviews, running out of time and out of the small businesses who could afford to wait.
The next move belongs to the Chancellor. So does the Whitechapel restaurant, on the present trajectory, by midsummer.
