A proposal to expand business rates relief for small firms in England could cost the UK Treasury an estimated £880 million each year, according to new analysis, adding to the debate over how the government would fund planned tax relief for high street businesses.
The proposal, championed by Greater Manchester Mayor Andy Burnham, aims to reduce the financial burden on smaller businesses by increasing the threshold for 100% small business rates relief. Burnham has argued that the measure would support struggling high streets while remaining consistent with Labour’s fiscal commitments.
Under the proposal, the rateable value threshold for full business rates relief would rise by 50%, from £12,000 to £18,000. The upper taper threshold, where relief is gradually reduced, would also increase from £15,000 to £21,000.
Analysis by global tax advisory firm Ryan estimates that the changes would remove more than 140,000 additional small business premises from paying business rates altogether.
Business groups have welcomed calls for reform. The Federation of Small Businesses has previously warned that around 104,000 small firms became liable for business rates after frozen thresholds combined with the latest property revaluation.
While the proposal has attracted support from retailers, hospitality businesses and local campaigners, questions remain over how the tax reduction would be financed.
Alex Probyn, Practice Leader for Europe and Asia-Pacific Property Tax at Ryan, said helping small businesses is a worthwhile objective but warned that any revenue-neutral approach would require additional funding from elsewhere in the system.
He noted that larger commercial properties are already paying higher business rates through an existing surtax designed to finance relief for the retail, hospitality and leisure sectors. According to Probyn, policymakers must now decide whether those larger businesses would be expected to shoulder an even greater share of the tax burden.
Burnham has repeatedly argued that large warehouses and major out-of-town developments, including facilities used by major online retailers, should contribute more to help fund lower rates for smaller businesses.
The government already introduced a 2.8 pence business rates surtax in April 2026 on commercial properties with rateable values above £500,000. Current legislation allows ministers to increase that surcharge to as much as 10 pence without introducing new primary legislation.
However, tax experts point out that the existing surtax applies to a broad range of large commercial properties, including offices, factories, logistics centres, airports, data centres and major retail sites, rather than targeting warehouse operators alone.
Probyn said increasing the current surcharge would offer a straightforward funding mechanism but warned that higher commercial property taxes could discourage investment, increase operating costs and affect sectors that play a significant role in economic growth and employment.
The debate also raises broader questions about business rates policy across the UK. While business rates are already devolved to Scotland, Wales and Northern Ireland, discussions over further devolution in England could influence both the future structure of the tax and who ultimately controls one of the country’s most significant sources of business taxation.
