The business rates system has reached a crossroads. After years of tinkering with reliefs and multipliers, the government needs to tackle the underlying problem: the cost of occupying commercial property is simply too high. Business rates are an important source of revenue for funding local government services, and taxation of property has been with us for centuries, but the system we have today is increasingly failing the businesses, investors and property owners it is supposed to serve.
The problem is not that business rates exist, it is that the burden has become too high and the system too complicated. Successive governments have tried to protect individual sectors by introducing reliefs, discounts and different multipliers. Collectively, they have created a system that is increasingly difficult to navigate and defend, resulting in a tax system that can discourage investment, contribute to vacancies and undermine regeneration.
At Colliers, we have been arguing for a return to first principles: simplify the system, reduce the overall burden and give businesses the certainty they need to invest. Central to that approach is our call for a 35p multiplier. But this is not the whole campaign. It is part of a wider package of reforms designed to make business rates simpler, fairer and less damaging to economic activity.
The case for 35p by 2035
The most important change the government can make is to set a clear long-term target for the multiplier. In 1990, the multiplier was 34.8p in the pound. Since then, businesses have increasingly been asked to shoulder a greater burden, with business rates receipts projected to approach £40bn by 2030. This year’s business rates tax take has increased by around 10%. That should prompt a fundamental question: are we now taxing commercial property occupation to a level that is counterproductive? Our view is that we are.
Colliers is calling for a roadmap to bring the multiplier down to a maximum of 35p in the pound for all businesses, with a clear trajectory towards that level by 2035.This is not a proposal for an overnight cut. It is a proposal for certainty. Businesses make investment decisions over years. Property investors need to understand future costs, while occupiers need confidence before committing to premises, fit-outs and expansion. If the government announced a clear path towards 35p, businesses could then
plan accordingly.
More than a sticking plaster
The immediate priority should be retail, hospitality and leisure. These sectors received substantial rates relief following Covid because many businesses could not have survived without it. The subsequent introduction of lower RHL multipliers was intended to provide longer-term protection. But the 2026 revaluation, particularly the methodology affecting pubs and hotels, combined with only a modest reduction in the lower RHL multiplier, has left many businesses facing substantial increases.
The government should therefore reduce the RHL multiplier to 35p from April 2027 and, crucially, provide certainty that it will remain at that level. That would do more than reduce bills. It would allow businesses to plan their costs rather than trying to predict what the next Budget or revaluation might bring.
Neither should business rates reform become a contest in which individual industries are periodically selected for support. It should be treated as a central question of economic policy: what tax system best encourages businesses to expand, invest and employ people?
Scrap the higher multiplier
The third element of the package is to scrap the higher multiplier. The current system imposes a higher multiplier on properties with rateable values of £500,000 or more, with the additional revenue being used to fund lower RHL rates. We are therefore effectively asking some of the largest occupiers of commercial property to pay more in order to subsidise others, even though they are main employers in the market.
The higher multiplier is currently 50.8p in the pound. The rateable value of properties subject to it is £30.6bn. Colliers estimates that reducing the multiplier to 48p would cost the Exchequer around £857m. But the economic consequences need to be considered alongside the immediate revenue. We are already seeing larger occupiers examining whether they can reduce their property footprint and bring their rateable values below £500,000 ahead of the next revaluation. That is not an efficient use of commercial property. Nor is it sensible to penalise larger RHL properties when many are anchor tenants that help sustain retail parks, town centres and high streets. When a major occupier leaves, smaller businesses suffer too.
Empty property relief rethink
The fourth issue is empty property.
Under the current system, business rates become payable after three months for most non-industrial properties and six months for industrial properties. This timetable bears little relationship to today’s commercial property market.
Marketing periods can easily exceed six months, particularly outside prime London. Properties may require extensive refurbishment, fit-out or repositioning before they are suitable for occupation.
Yet once the relief period expires, the owner faces the rates bill whether or not there is a tenant or rental income, and that can result in bills running into tens or hundreds of thousands of pounds while a property sits empty.
The unintended consequence is a system that can encourage defensive behaviour rather than investment. Colliers is therefore calling for empty property relief to be extended to 12 months, followed by 50% relief thereafter – to give owners the breathing space needed to refurbish buildings, undertake sustainability improvements and find appropriate occupiers. It could also reduce the incentive for avoidance schemes and unnecessary demolition.
If we want to regenerate high streets and commercial districts, it makes little sense to impose the greatest tax pressure on owners when they are trying to bring vacant properties back into productive use.
How do we pay for reform?
There is, inevitably, a Treasury question.
Our estimate is that reducing the RHL multiplier to 35p would result in a short-term revenue reduction of around £800m. Scrapping the higher multiplier would cost a further estimated £857m. The answer should not simply be to shift the burden elsewhere within commercial property.
The government has consulted on an online sales tax as one means of addressing the different treatment of online and physical retail. We believe a delivery charge on online retail could also be considered. There is an environmental as well as fiscal argument. A charge linked to delivery costs could encourage more efficient use of the final-mile network and greater consolidation of parcels.
On the assumptions in our proposal, a charge equivalent to 20% of delivery costs could raise an estimated £4.85bn, based on around five billion parcels annually. Even if the eventual yield were closer to £4bn, it could potentially finance the abolition of the higher multiplier, the reduction in the RHL multiplier to 35p and a significant reduction in the standard multiplier.
The important point is that the government should look at the tax system as a whole rather than continually moving the burden between different types of property occupier.
This is about investment – not simply taxation
There will always be arguments about individual tax rates and sectors. But the bigger issue is what business rates are doing to the commercial property market.
A high tax on occupation reduces the returns available to investors. It can make marginal properties unviable and influence decisions about where businesses locate and how much space they occupy. And when buildings remain vacant, the economic consequences extend far beyond the property owner.
That is why this campaign is not a call to abolish business rates, nor a demand for a tax giveaway to one particular sector. It is a call for the government to recognise that there is a sustainable level of taxation beyond which the wider economic damage starts to outweigh the additional revenue.
Time to stop tinkering
The Chancellor has an opportunity in the 2026 Autumn Budget to start that process. He should commit to a clear roadmap towards a 35p multiplier for all, beginning with a reduction in the RHL multiplier to 35p from April 2027. He should scrap the higher multiplier and extend EPR to 12 months, and he should consider alternative sources of revenue, including a delivery charge, so that reducing the burden on commercial property does not simply mean increasing it elsewhere.
After years of tinkering with the system, we need to step back and ask what business rates are actually supposed to achieve. They should raise revenue for public services. But they should also allow businesses to invest, expand and occupy property without facing a tax burden that makes those activities uneconomic.
The objective should be a business rates system that is simpler, more predictable and capable of supporting – rather than frustrating – investment, occupation and long-term economic growth.
John Webber is head of business rates at Colliers
Image: ©Colliers
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