More than 200 employers have submitted a letter to the Chancellor, John Healey, advocating for a comprehensive revision of business rates in the upcoming Budget on 28 October.
The proposal includes a 2% levy on online sales to finance a 37% reduction in rates for businesses operating physical premises.
This initiative, organised by the Real Rates Reform Alliance, highlights the current system’s disproportionate burden on businesses contributing to community investment, which is stifling further growth and employment opportunities.
The signatories of the letter include notable figures such as hotelier Sir Rocco Forte and leaders from Boodles and The Ritz London, alongside representatives from galleries, nurseries, cafes, independent shops, and business improvement districts across the UK.
The letter criticises the government’s current approach of sector-specific reliefs and exemptions, claiming it creates a system that “picks winners and losers without ever addressing the fundamental issues.” The alliance proposes a Hybrid Business Rate, which would integrate a reduced property-based business rate with a levy on eligible online sales.
By broadening the tax base in this manner, the alliance argues, it would be possible to decrease business rates by up to 37% while preserving local government funding, with certain exemptions to safeguard small businesses.
The Heart of London Business Alliance, a founding member of the alliance, has published a proposal suggesting that the online sales element could be assessed and collected through the VAT system, potentially launching in 2027. The letter also acknowledges the Prime Minister’s initiative to cut business rates for pubs, clubs, and live music venues, although it stresses that this is not the fundamental reform needed to rectify the existing flaws in the system.
Rachel Reeves, former Chancellor, had committed to balancing the competition between high street and online businesses. The letter urges Healey to consider a “fundamental reset” akin to what Labour promised while in opposition, citing statistics that nearly 13,000 shops closed in 2024, equating to roughly 37 closures each day.
Sir Rocco Forte, chairman of Rocco Forte Hotels, stated that hotels are facing an average business rates increase of 115% over the next three years, a level deemed unsustainable and detrimental to investment and job creation. Michael Wainwright, managing director of Boodles, emphasised that businesses investing in physical premises should not bear an excessive tax burden. Ros Morgan, chairman of the Real Rates Reform Alliance, argued that decades of piecemeal reliefs have failed to address the core issues, and the government now has an opportunity for substantial reform.
The letter arrives as reports suggest Healey is considering changes to small business rates relief in the Budget, with plans to make online marketplaces collect sellers’ VAT to fund business rates cuts for high street shops. The signatories conclude by urging the Chancellor to seize this opportunity to create a business tax system that is simpler, fairer, more sustainable, and better aligned with the future economy.
The letter in full —
Dear Chancellor,
Across the UK, too many towns and cities are being held back from realising their economic potential.
In 2024 alone, almost 13,000 shops closed (around 37 every day), as rising costs continued to outpace growth.
Businesses that invest in communities create jobs, drive productivity and sustain local economies, yet the current business rates system places a disproportionate burden on those businesses, while an increasing share of economic activity now takes place online without making a proportional contribution to the tax base.
Against this backdrop, we welcomed the recent announcement by the Prime Minister to cut business rates for pubs, clubs and live music venues.
However, while this decision recognises some of the inadequacies within the current business rates system, it is not the fundamental change required to fix this broken system once and for all.
We believe this moment now presents a unique opportunity to go further and create a business tax system that fixes the current regime’s fundamental imbalances, support firms across all sectors and drive investment in communities and long-term economic growth.
For more than two decades, governments of all colours have sought to reform business rates through new reliefs, exemptions and differential multipliers for individual sectors.
While often well-intentioned, this piecemeal approach has produced an excessively complex set of reliefs and special provisions that picks winners and losers without ever fixing the underlying problem.
The result is a fundamentally flawed system that is harder to understand, less economically rational and increasingly disconnected from the way the modern economy operates.
The next phase of business rates reform should build upon sector-specific interventions and modernise the system itself. The tax system should better reflect where economic activity takes place.
We therefore urge you to consider a fundamental reset, of the sort Labour promised in opposition.
We believe the Hybrid Business Rate is the comprehensive reform that this moment requires.
It combines a lower property-based business rate with a modest levy on eligible online sales across the economy.
The levy would be collected through the existing tax system, using an established administrative mechanism that minimises additional costs for businesses and government.
Broadening the tax base in this way would generate sufficient revenue to reduce business rates by up to 37 per cent, while maintaining sustainable funding for local government.
Carefully designed exemptions would ensure that the levy applies only to eligible online sales, protects small businesses and continues to support investment in physical places and experiences.
A Hybrid Business Rate is more than a reform of business rates. It is a modern fiscal framework designed for today’s economy, one that supports investment and provides combined authorities with a broader and more resilient tax base to underpin devolution, infrastructure, and long-term place-based growth.
Britain has spent three decades adjusting business rates instead of resolving their fundamental flaws. The time has come to modernise this broken system.
We call on you to seize this opportunity to create a business tax system that is simpler, fairer, more sustainable, and better aligned with the economy of the future.
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