Businesses are hiking costs for consumers, slashing investment and cutting staff as a direct response to spiralling business rates bills, new research shows today.
The poll of 1,000 UK businesses comes as a coalition of leading business organisations launches the Real Rates Reform Alliance – a UK-wide campaign calling on Government to replace what it describes as the UK’s “broken and unsustainable” business rates system.
Members include UKHospitality, the Institute of Directors, the Association of Town and City Management, the Music Venue Trust, the British Independent Retailers Association and Heart of London Business Alliance. Between them, the organisations represent over 28,000 businesses and business leaders.
The alliance is calling for a new hybrid business rate solution that reduces the tax burden on bricks-and-mortar businesses while ensuring the tax system better reflects today’s digital economy.
It would involve a small levy of two per cent being imposed on all online sales, enabling a cut of 37 per cent for businesses with physical premises – a major shot in the arm for high streets and communities.
Independent research by market research firm Savanta today reveals the growing economic damage being caused by business rates and the reforms made at the last Budget. Almost half (47 per cent) of businesses say their business rates bill has increased since April 2026, while just one in ten have seen bills fall.
More than half (55 per cent) say business rates are now a major or moderate cost to their business. Among businesses affected by recent changes, 70 per cent say higher business rates have had a major or moderate impact on their operations.
Nearly one in three (31 per cent) have raised prices for customers as a direct response to higher business rates, while more than a quarter (27 per cent) have cut costs elsewhere. Almost one in five (19 per cent) has delayed investment.
Around one in six have reduced staff numbers (17 per cent), while 15 per cent have implemented hiring freezes, 15 per cent have delayed expansion and 14 per cent have reduced staff hours.
Overall, more than half (55 per cent) are now concerned about the impact of business rates on their company’s performance.
The impact is even more acute for medium and larger businesses. More than two-thirds (68 per cent) report their business rates have increased since April, over three-quarters (76 per cent) now regard business rates as a major or moderate business cost, and 78 per cent say the latest changes have had a major or moderate impact on their organisation. More than one in three (34 per cent) have already increased prices for customers because of higher rates.
The Real Rates Reform Alliance argues that the current business rates system no longer reflects the realities of a modern economy. Business rates are a property-based tax introduced in 1990, when the digital economy did not exist.
Today, retail and hospitality businesses make up an estimated nine per cent of the economy, yet contribute an estimated 34 per cent of all business rates. Meanwhile, the fast-growing digital economy, which accounts for a fifth of economy activity, does not contribute its fair share to local Government services, paying an estimated seven to nine per cent of total business rates.
The hybrid business rate proposal would retain a property-based business rate at a significantly lower level while introducing a targeted levy on eligible online sales, creating a fairer balance between digital and physical businesses.
It would raise slightly more than the £34 billion a year currently raised through business rates, and ensure a sustainable tax base for the Treasury in the coming years. Labour committed to real rates reform levelling the playing field between online and physical businesses in its election manifesto.
Ros Morgan, chief executive of Heart of London Business Alliance and chair of the Real Rates Reform Alliance, said: “These findings expose the real-world consequences of a business rates system that is broken, unsustainable and no longer fit for purpose. Businesses are being forced to increase prices for customers, delay investment and cut jobs simply to cope with an outdated tax that bears little relation to today’s economy.
“Business rates should support growth, not hold it back. Andy Burnham has already acknowledged the current system isn’t fair and talked about levelling the playing field between online and some physical businesses. We want him to go further.
By bringing together a broad coalition of business organisations behind a practical, credible solution, we want to work with Government to seize the opportunity of lasting reform that protects high streets, supports investment and creates a fairer tax system for the modern economy.
Allen Simpson, chief executive of UKHospitalityX said: “Hospitality businesses have faced wave after wave of rising costs, and these findings confirm what we have been telling Government: business rates are now actively suppressing investment and growth. The negative impact on young people’s job prospects is only increasing and customers are facing higher prices. Reform is long overdue. We are pleased to be part of an alliance that is bringing forward a practical solution capable of creating a fairer environment for businesses that invest in places, people and communities.”
Anna Leach, chief economist at the Institute of Directors, said: “Businesses need a tax system that encourages investment, productivity and growth rather than discouraging it. The evidence shows the current business rates regime is weakening business performance and the wider economy, and is inequitably distributed across firms. The time has come for fundamental reform.”
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