Shops, pubs, and restaurants across England are set to face an additional £1 billion in taxes starting in April as the government’s business rates discount is reduced.
This increase, announced in the autumn Budget, will affect businesses in the retail, leisure, and hospitality sectors, compounding financial pressures on an industry already grappling with rising operational costs, inflation, and changing consumer habits.
According to DevonLive, the tax changes are expected to have a disproportionate impact on small and independent businesses, particularly in high-cost areas such as London and the South East.
Business rates discount cut from 75% to 40%
Currently, businesses in the retail, hospitality, and leisure sectors benefit from a 75% discount on their business rates. However, from April 2025, this relief will be reduced to 40%, significantly increasing financial burdens for many companies.
Each business will still be eligible for a maximum discount of £110,000, but the reduced relief is expected to generate an extra £1.03 billion in tax revenue for the government over the 2025-2026 financial year.
The hardest-hit businesses will be in London, which will contribute nearly £309.7 million of this amount. Businesses in the South East will see an additional £157.9 million in costs, while those in the North West will pay £110.5 million more.
Rising costs add pressure on struggling businesses
Beyond business rates, companies will also face increased national insurance contributions and a higher national living wage for employees. These changes, combined with rising supply chain costs, inflation, and fluctuating consumer demand, create a challenging environment for businesses, particularly small and independent enterprises.
Alex Probyn, a property tax expert at Ryan, warned that the situation
Comes on top of a tsunami of other rising costs, making it a complex and challenging environment
for businesses to operate in. He also emphasised that the tax changes will
Disproportionately affect small and independent businesses across sectors already struggling.
Future Relief for Smaller Businesses in 2026
The government has pledged to introduce permanently lower business rates for smaller retail, hospitality, and leisure businesses from 2026.
Additionally, it has stated that around 865,000 employers will be exempt from paying national insurance due to an increase in the employment allowance from £5,000 to £10,500.
Despite these measures, industry experts caution that many businesses may not survive the short-term financial strain.
Business rates in retail, leisure, and hospitality are expected to rise by 140% over the next tax year, meaning that the average business tax bill will increase from £3,589 to £8,613 in 2025-2026.
