The chancellor announced that lower taxes for retail and hospitality businesses will be funded by higher charges on large commercial properties, shifting more of the tax burden onto the UK’s biggest industrial and infrastructure sites.
By announcing rate reductions for 750,000 shops, cafés and leisure venues, Rachel Reeves has brought business rates for the retail, hospitality and leisure sectors below those for other commercial properties.
Retailers have long pushed for business rates reforms, fuelled by concerns that online retailers could crowd out High Street businesses.
She also confirmed a 4.9 percent rate increase for properties valued at £500,000, a category dominated by major warehouses, factories, rail depots, power stations, water treatment works, and large telecoms sites.
Reeves said the increase would hit “the warehouses used by online giants”.
Business rates raise more than £25bn a year and are based on rateable values set by the Valuation Office Agency, which reflect estimated rental values.
Yet recent revaluations have also pushed up the rates for large industrial and logistics sites as demand for warehouse and distribution space has increased, leaving many of them among the highest-taxed properties in the system.
On a warehouse valued at £1m, the 4.9 percent increase would mean roughly an extra £25,000 a year.
Paul Weston, Head of Prologis UK, a major logistics facilities operator, called business rates hikes a “blunt instrument” and said they would risk raising prices and affecting staff recruitment.
“The reality is that there are lots of businesses besides e-commerce operators that this change will really catch out, including manufacturing.”
Weston said occupiers in London and the South East would be disproportionately hit, since they have higher valuations even as they bring in similar profits.
The tax also applies to a wide range of operational sites, including utilities infrastructure and transport hubs, leaving essential services with higher costs.
The rate could further increase to 10.2% in 2026–2027, according to the Office for Budget Responsibility’s economic and fiscal outlook.
Britain has experienced difficulty drawing long-term investment into infrastructure and heavy industry. The UK has the highest level of property taxation in the OECD, driven in part by the scale of business rates.
Simon Lowth, CFO of BT Group, Britain’s largest telecommunications company, warned ahead of the Budget that the rate hikes could impact infrastructure investment.
“Businesses may have to absorb the costs through cutting back on investment,” he said. Telecoms operators hold some of the largest clusters of high-value technical sites in the country, including major exchanges and switching centres.
Industrial property groups further warned that the surcharge would hit assets that cannot easily shrink or relocate, such as modern office spaces.
Ion Fletcher, policy director at the British Property Federation, called the increase “poorly targeted” and warned it “will put jobs and growth across the country in jeopardy.”