Business rates reform absent from spring statement: concerns for retailers in the UK

In her first spring statement and second budget as UK Chancellor, Rachel Reeves presented a plan aimed at kick-starting the country’s faltering economy.

In her statement on Wednesday, the UK’s first female Chancellor admitted that “growth is still not where it should be” but nonetheless reiterated the government's decision to raise the National Living Wage "to give three million people a pay rise from next week." On 1 April, this will increase from 11.44 pounds to 12.21 pounds per hour for those aged 21 and over.

The spring statement came as the Office for Budget Responsibility (OBR) downgraded its forecast for UK economic growth, halving this year’s estimate to just one percent. While inflation showed some improvement, it remains higher than predicted in the autumn. However, Chancellor Reeves reiterated her confidence that inflation will hit the government’s two percent target by 2027, down from a peak of 11 percent under the previous administration.

Reeves emphasized that the UK’s fiscal rules remain “non-negotiable,” underscoring the government’s commitment to economic stability, leaving no wriggle room to ease fiscal constraints in response to current economic pressures. Alongside this, Reeves announced an increase in capital spending by an average of two billion pounds per year compared to the autumn statement, aimed at driving economic growth and upholding key commitments, including defense. However, day-to-day spending will grow at a slower rate, reduced to an average of 1.2 percent above inflation, down from the previous 1.3 percent estimate.

Among the most significant cost-cutting measures are those made to welfare spending. According to the OBR, this could save up to 4.8 billion pounds, though it is said to mainly impact the spending power of lower-income households—something critics have long argued could place additional financial strain on vulnerable groups, potentially dampening consumer demand and slowing economic recovery further.

Upcoming business rates reform continues to cause concern

One thing that was notably absent from Reeves' statement was the looming business rates reform. As one of the retail sector’s biggest concerns at the moment, many had hoped for clarity on the previously announced measure in the Autumn Budget, which sees small retail businesses receiving a 40 percent relief on business rates, opposed to the current 75 percent discount, which is due to expire this month.

This, paired with uncertainty about how the Employment Rights Bill is to be implemented and tax-raising policies, is cause for concern, according to Helen Dickinson, chief executive of the British Retail Consortium. She warned that it will be much harder for retailers to keep creating "these" kinds of jobs—referring to the Chancellor’s aim to reduce the number of people who are "economically inactive" and need to find routes back into the workforce. She believes the retail industry would technically provide an ideal solution, as a sector that offers local, flexible jobs, often requiring few qualifications, as well as part-time roles that allow people to find their feet, work as much or as little as they are able, and balance work with other important life commitments. She cautioned the government to "avoid unintended consequences and provide clarity about the implementation of these policies as soon as possible."

Dee Corsi, Chief Executive of New West End Company, echoed these concerns, emphasizing that the Spring Statement failed to deliver the urgent support many businesses need. She warned that the upcoming hike in business rates poses a major threat to retail, hospitality, and leisure firms, calling it a "major barrier to the government’s growth agenda" with potentially severe consequences. Corsi also highlighted the continued absence of tax-free shopping, which cost West End businesses 640 million pounds last year, hindering the UK’s global competitiveness. She urged the government to reconsider its proposed reforms to protect flagship high streets, attract investment, and support economic growth.

The Chancellor’s decision not to extend the 75 percent business rates discount for retail, leisure, and hospitality firms also sparked criticism from other industry experts, warning of significant financial strain on high streets already struggling with job losses. Alex Probyn, Property Tax Practice Leader at Ryan, described the move as a promise of “jam tomorrow,” highlighting that 27,000 high street jobs have already been lost or are at risk in the first quarter of the year. The cut to the discount, dropping it to 40 percent, will cost businesses an additional 1.03 billion pounds in tax from April, with London hit hardest.

Moreover, Probyn warned that from 2026, the government will effectively be “robbing Peter to pay Paul,” shifting the burden of funding permanent tax cuts for high street businesses onto the largest ratepayers to save 1.4 billion pounds. With business rates income set to rise by 5.7 percent in 2025/26, councils are expected to generate 27.8 billion pounds, largely driven by the reduction in retail sector relief. The move comes as retailers continue to grapple with economic uncertainty, prompting concerns that the lack of immediate business rates reform will only further hinder the sector’s recovery.