Government moves to remove ‘cliff edges’ in small business rates to protect expansion

The government said it will examine changes to small business rates relief to eliminate sharp ‘cliff edges’ in bills that can arise when firms open additional sites, a move officials said is intended to encourage expansion among smaller firms.

Under the proposals being explored by the Treasury, the single‑property requirement that strips relief when a business opens a second premises could be removed or revised so that increases in bills are more gradual. The government said an update on its work is expected in November.

Small business rates relief currently provides a 100 percent discount for a property with a rateable value of £12,000 or less, with tapered relief for sites valued between £12,000 and £15,000. The existing single‑property rule means that a company can lose its entire entitlement to that relief after opening a second site, producing sudden jumps in annual bills that critics describe as ‘‘cliff edges’’. Treasury officials said the current structure can discourage small businesses from expanding.

The government’s announcement follows pressure from retail groups and some local representatives. Large retailers and department stores have separately raised concerns about proposed changes to business rates that could push thousands of outlets into higher tax bands. Industry representatives have warned that as many as 4,000 stores — including so‑called anchor stores that draw shoppers into town centres — could face higher bills, a development they say would damage high streets.

Ministers said the small business relief review does not yet address another controversial set of proposals that have targeted larger grocers and department stores for rate increases. Treasury officials declined to confirm details of any package of measures affecting bigger retailers while consultations and analysis continue.

The move to smooth relief echoes ideas floated by opposition parties that would see rate rises applied more gradually, similar to the progressive steps used in income tax bands. Officials described those models as part of the range of options under consideration but offered no firm timetable for legislative change beyond the November update.

Business rates are a key source of local government funding and a frequent focus of debate between ministers and the retail sector. Reforms to the system have been sought by councils seeking revenue stability and by retailers and small business groups seeking predictable and proportionate bills. The government’s review is expected to consider both the revenue implications for central and local government and the potential effects on business behaviour, including decisions to expand.

Retail trade bodies and some Conservative backbenchers have urged the Treasury to protect ‘‘anchor’’ stores and town centre retailers as it redesigns reliefs, arguing that sudden increases in rates could accelerate shop closures and weaken high streets. Small business groups have pushed for changes that would remove penal deterrents to opening additional outlets.

Officials said the Treasury will publish further detail on proposed options and impact assessments ahead of the November update. Any substantive changes to small business rates relief would require legislative steps and engagement with local authorities, which administer collections, and affected business groups.

The government’s review is part of a broader effort to balance support for small firms with the fiscal and local revenue consequences of altering the business rates regime. Officials have not set out which, if any, specific reforms will be adopted but indicated that smoothing the transition between relief bands and reconsidering the single‑property rule are priorities in the current workstream.