Time for a new leaf on business rates

In recent years, SMEs, including those within the hospitality sector, have faced numerous challenges.

From the pandemic to extortionate energy bills, various costs have jumped over 200% in the last 18 months. It has been a tough time for the sector and wider economy. Green shoots of recovery have been clouded by ongoing inflation and the rise in interest rates.  Now we can add business rates to the list, with the proposed ending of business rate relief in April 2024. 

To support businesses during the COVID-19 pandemic, business rate reliefs were announced in the March 2021 budget and these were made available through 2020/21, and into the 2021/22 financial year.  In autumn 2022, the government announced a support package for business of £13.6bn, including freezing business rates which usually increase annually.  However, business rates are set to increase in April 2024 under the government’s “multiplier” which is linked to inflation. 

The ending of the rates relief and link to the multiplier, could leave many SMEs on the brink of collapse. With many in the hotel and leisure sector having already been forced to close their doors, action needs to be taken swiftly. 

Strong voices in the industry like UK Hospitality are standing up and the British Retail Consortium has written an open-letter to the Chancellor – Jeremy Hunt – asking him to freeze the business rates multiplier. 

Whilst a short-term freeze is imperative, the whole business rates system needs to be overhauled. The system is archaic and outdated, punishing SMEs particularly, as external factors like interest rates and energy increases are  impeding and slowing our recovery. 

Business rates represent a tax, often without tangible benefits nor any bearing on the ability of a business or SME to pay. Perhaps, the rates should be performance-based, linked to profitability? 

Whatever the solution, a revaluation of the criteria which determine business rates, emphasising the importance of aligning taxation with the economic realities faced by businesses, is urgently required. 

The inflexible nature of business rates is especially detrimental to the hospitality sector given its pronounced fluctuation of revenue, linked to seasonal change. A potential consideration could be the temporary reduction in business rates during off-peak seasons or during times of economic crisis, enabling businesses to manage their cash flow more effectively. 

As we continue to find ways of navigating a challenging landscape for the hospitality sector and SMEs in general, we remain hopeful the government will do the right thing, whether extending the freeze on business rates, or finding an alternative solution which reflects the significance of SMEs to the country’s long term economic health.

Lionel Benjamin - cofounder of AGO Hotels

Lionel is the cofounder of AGO Hotels and an experienced and entrepreneurial hotel business leader. In a career spanning over 25 years, Lionel has held management roles across many of the world’s most prestigious hotel brands and has been involved in the sale and acquisition of hotel assets in excess of £2.5bn.

AGO Hotels