Broken business rate system set to hammer London's pubs, hotels and shops

0:02Hi, I'm Charlie Duffield and welcome back to The Standard Podcast. If you're new here, hit follow and give us a rating. For all the latest news, head to standard.co.uk. Coming up later in the show, how severe is the business rate burden from Chancellor Rachel Reeves' make or break autumn budget? But first, the festive season is here, but at a time of year when pubs and restaurants and hospitality businesses should be able to stash some extra cash from all that additional seasonal socialising, many have been left reeling after last week's budget. They face sharp increases in business rate payments, and pub bosses have warned that the budget has threatened the future of jobs and venues across the UK.

0:54Less than a week after Rachel Reeves' budget speech, thousands of business owners in the retail and hospitality sector have learned their bills will rise by tens of thousands of pounds as a result of a broken business rate system. The changes won't be implemented until April 2026, but that's not so far away. Chris Chowsey, chief executive of Admiral Taverns, said the sector will come under more pressure following relentless headwinds over the past year. He said, The reality of Wednesday's budget is that Reeves has placed an even bigger burden on the shoulders of community pubs, posing further risk to our industry, threatening both jobs and the viability of our beloved pubs across the country.

1:36The damage is being done by a combination of huge increases in rateable values and the end of 40 % relief for the sectors most harmed by the pandemic lockdowns. It's being replaced by a 5 % discount to the multiplier that calculates their bill, much less than business hoped for. The combination is leading to huge increases in the business rate burden for operators across London and the UK. According to calculations by the pub advisory service, the average bill for a pub will rise more than£11 ,000, or 37%, from£30 ,375 to£41 ,560. The analysis also indicated that restaurants will see their rates bills jump by 44.9 % from April, while small shops will see a rise of around 42.3%.

2:29Pub bosses highlighted that the higher minimum wage and an inflation-linked increase to alcohol duty will also make the cost of running pubs more expensive. Shadow Business Secretary Andrew Griffith said, Reeves' claims she lowered business rates. I call BS. Many pubs, restaurants and shops have realised their bills are actually going up by a lot. Why? Because while multipliers seem lower, an important relief was scrapped. Sasha Lord, chairman of the Nighttime Industries Association, said in a social media post, the government must urgently review the budget's announcement on business rates. It's catastrophic for the country.

3:10will force closures, cost jobs and crucify a sector that should protect vital community spaces. Kate Nicholls, chair of industry group UK Hospitality, said the Chancellor recognised the importance of hospitality and provided a permanently lower multiply for hospitality businesses, reforms secured by UK hospitality. However, the 5p discount is only a quarter of the maximum 20p discount the government proposed last year. When asked about the increase in business rates, reported by some owners. Education Secretary Bridget Philipson said, At the budget, we set out that we would be permanently lowering business rates for over 750 ,000 retail, hospitality and leisure properties, and we are putting in place over£4 billion of support to cap bill increases for sectors hardest hit by re-evaluations from April next year.

4:02To find out more, I spoke to The Standards business correspondent Jonathan Prynne. Jonathan, tell me your take on what's going on here. Well, what we've been learning is that far from business rate bills coming down, as Rachel Reeves was trying to present in the budget on Wednesday, a lot of businesses up and down the country, and particularly in London, and particularly in those sectors that have seen the biggest squeeze in recent years, hospitality, retail, leisure, and so on, it does look as if in many cases, their bills are going to go up very substantially in some cases. And indeed, some owners and operators are already saying there's no point in them carrying on because they'll just be working for the taxman.

4:43And there's no chance of making any profit now with these higher rates coming through. So there's been real outrage and despair and fury, I think, across the sector. People have just sort of worked out just how much their bills are going to go up. This isn't something that was expected, is it? I think it's taken a couple of days for this to really sink in just how bad the situation is. As I said, the Chancellor was sort of trying to present the measures as a big reduction in the business rate bill for a lot of companies, smaller companies. In fact, when people have actually sort of totted up the numbers, done the calculations, a lot of them are going to get huge increases next year coming through.

5:25Part of the reason for that is that the support that they had from the government during and after the pandemic, where sectors such as retail, leisure, or particularly retail, leisure and hospitality were given a lot of support. Initially, 75 % rates relief that was reduced to 40 % last year. That has now ended. And although they still do get a small discount, a 5 % discount on what's known as the multiplier is used to assess or calculate your actual bill. That's a lot less than a lot of them had hoped for. They'd hoped for maybe a 20 % discount. So I think there's a feeling around the country that those sectors that have really suffered since the pandemic are now having all the help or most of the help taken away from them at the same time that all sorts of other costs are going up.

6:12And in a lot of cases, it's going to mean that they're just not viable businesses anymore. The hospitality sector also took a hit in the previous budget, right? Yeah, I mean, last year, it was all about the employer's rate of national assurance, which went up and caused a huge amount of extra costs and extra pressure on businesses, squeeze on their profit margins, squeeze on the number of people they were prepared to employ. That also came in at a time when minimum wages were going up well above the rate of inflation, particularly for the 18 to 20 age group, which is where a lot of hospitality businesses draw their staffing from because they like to employ students, for example, on a part time basis.

6:53So those minimum wage rates went up particularly dramatically and will again next April. We now learn 8.5 % in April, well above the rate of inflation. So I think the hospitality sector in particular does feel they're just being bombarded with cost increases that they're finding extremely hard to offset. And in many cases, it will leave them potentially going under. This sector is hugely important for our economy, isn't it? You've only got to look at the West End alone to get an impression of just how big an industry is for London. But, you know, it's not just the West End. And obviously, there's thousands of restaurants and bars all over London.

7:34The hostility sector is a huge employer in London. And I think that's one of the reasons that we've actually seen unemployment rise in London much more sharply and to a higher level than some other parts of the country, because those sectors, hostility and retail in particular, which are very big in the capital, have been very badly damaged by all sorts of rising costs. And these business rate bills going up will just not help that. Let's go to an ad break. Coming up, how exactly is the business rate system going to cause so much damage? We'll see you back here in just a moment. Welcome back. Jonathan, what's the reaction been so far then to this news?

8:19A lot of businesses have gone onto social media to explain just how upset they are, how much their bills are going up, tens of thousands of pounds in many cases, But also the heads of business groups, Sasha Lord at the Nighttime Industry Association, Kate Nichols at the UK Hostility Trade Body, they have gone on the record saying how awful it is for many of their members. I've been writing about some individual premises that are going to see their rates got 40, 50 percent more in some cases. Interestingly, Premier Inn, a big company that can probably look after itself, but obviously runs a lot of hotels.

8:58They're saying that their bill could go up by as much as 40 to 50 million across the business, which is owned by Whitbread. As I say, they can take it. It's much harder for individual operators that don't have all the backup and resources that a big company has. It's much harder for them to carry on when they're getting whacked so hard by these extra bills. I know you said it was a complex scenario. Can you try and explain the figures a bit more? A body called the Valuation Office, every three years, gives you a valuation of what's called a rateable value of your property, which is then used as sort of the benchmark for how much your bill will be.

9:37Then a multiplier is applied to that rateable value, which is used to sort of work out the actual bill in pounds and pence, how much you're going to be paying. And it's very complicated and there are various different rates of multiplier depending on which sector you're in and what sort of business you are and so on. But in essence, the rateable values have gone up hugely since they were last carried out in 2021. There was another round in 2024, which will be the basis for bills coming in in 2026. In 2021, of course, we were still in a pandemic. We were in lockdowns. A lot of those rateable values were quite depressed because people couldn't go out to pubs and restaurants and bars and so on.

10:18So since then, of course, the economy has opened up. We're back in a normal situation now. And the valuation office has applied much higher rateable values because turnover has gone up so much since the pandemic. And I think that's why people feel so aggrieved, that they feel that it's not a fair comparison, that raiseable values were sort of artificially depressed in 2021. And now they're getting hit simply because things have gone back to normal. But at the same time, costs have gone up enormously. So their profit margins are hugely squeezed. They've been hit on every direction. It's complicated, but essentially it's the taking away of relief at the same time that rateable values are going up.

11:03It's a real double whammy. Finally, do you have anything else to add? I think the way it's panned out, and it may have been inadvertent, some of it, I don't know, but the way it's panned out, I think is, I guess they would have hoped it wouldn't come out this way. But I think they are going to get a lot of backlash from these industries, particularly pubs, particularly restaurants, particularly small high-street retailers over the next few weeks as the penny drops about just how bad these rises are going to be.

11:36And that's The Standard. For all the latest news, head to standard.co.uk. If you'd like to get in touch, please do drop us a line at podcasts at standard.co.uk. We'll be back here tomorrow morning. We'll see you then.