Business Rates and Local Government: What Councils Want, Why It’s Contentious, and What’s at Stake
- truthaboutlocalgov
- Nov 29, 2025
- 13 min read
Business rates officially known as national non‑domestic rates (NNDR) are one of the least popular taxes in the UK, yet they remain a cornerstone of local government finance. They generate tens of billions of pounds annually, forming a critical part of the funding that councils rely on to deliver essential services such as social care, waste management, and economic development. Despite their importance, the system is widely criticised for being outdated, overly complex, and misaligned with modern economic realities.
The debate centres on three fundamental questions:
Who should control the revenue?
Currently, councils retain only a portion of the business rates they collect, with the rest redistributed through a national system of tariffs and top‑ups designed to equalise resources. Many local authorities argue that this limits their ability to incentivise growth and plan strategically.
How should the burden be shared?
Business rates are based on property values rather than turnover or profitability, which means sectors with large physical footprints such as retail and manufacturing often bear a heavier burden than digital or service‑based businesses. This has fuelled claims that the system penalises high streets while favouring online retailers.
Does the design discourage investment?
Because improvements to property can increase rateable value, businesses sometimes delay or avoid upgrading premises to avoid higher bills. This “investment penalty” is a long‑standing criticism and a key reason why reform is on the agenda.
In England, the system is entering a period of significant change. From April 2026, a new structure of five multipliers will replace the current two, introducing differentiated rates for small businesses, retail/hospitality/leisure sectors, and high‑value properties. At the same time, the business rates retention system will undergo its first full reset since 2013, recalculating baselines and redistributing resources across councils. These changes are intended to modernise the system and make it fairer, but they also introduce uncertainty and complexity for local authorities already grappling with financial pressures.
What Local Authorities Would Ideally Like to Do with Business Rates
While priorities differ by geography and tier, most councils converge on four broad ambitions for reform. These aspirations reflect a desire for greater autonomy, fairness, and flexibility in a system that has become increasingly complex and, in many cases, misaligned with local economic realities.
1. More Local Control Over Retention and Clarity Over Baselines
Since the introduction of the Business Rates Retention Scheme in 2013, councils have been allowed to keep a share of the rates they collect, creating an incentive to support local growth. The standard arrangement is 50% retention, but some areas such as Greater Manchester, the West Midlands Combined Authority, and the Greater London Authority have negotiated bespoke deals allowing higher retention in exchange for forgoing other grants.
For 2025–26, government confirmed these increased-retention areas will continue, while the rest of local government remains at 50%. Councils argue this creates a two-tier system and want higher and more uniform retention across England, alongside a transparent reset of baselines to avoid locking in historic advantage or disadvantage. Without this, authorities with strong historic tax bases continue to benefit disproportionately, while those with weaker economies struggle to fund services despite growth efforts.
2. A Fair Reset That Balances “Needs” and “Incentives,” With Transitional Protections
The reset planned for 2026–27 will update Business Rates Baselines (BRBs) for the first time since 2013. This is a pivotal moment: if handled poorly, it could trigger sharp redistribution shocks, leaving some councils facing sudden funding gaps. The Local Government Association (LGA) has called for a reset that:
Reflects relative need, not just historic collection levels.
Preserves growth incentives so councils still benefit from economic development.
Includes transitional protections to avoid destabilising local services.
The LGA also stresses the importance of transparency publishing clear impact assessments by authority, including implications for high streets and enterprise zones.
3. Flexibility on Reliefs and Levers for Real Local Growth
Currently, most reliefs such as Small Business Rate Relief and Retail, Hospitality and Leisure (RHL) relief are set nationally. Councils want more discretion to tailor these tools to local priorities, for example:
Piloting place-specific incentives to attract investment in struggling high streets or industrial zones.
Adjusting reliefs to support sectors critical to local economies.
Introducing mechanisms to mitigate volatility from appeals, which can wreak havoc on collection funds.
Authorities also want stability on multipliers to support the high street and encourage investment, rather than relying on cliff-edge, annual relief packages announced at each Budget.
4. A Modernised System That Doesn’t Penalise Investment and Is Administratively Manageable
One of the most persistent criticisms of business rates is that they penalise investment: improving a property often leads to a higher rateable value and therefore a bigger tax bill. This creates a perverse incentive for businesses to delay upgrades or expansion. Councils and businesses alike want a system that:
Reduces this investment penalty.
Responds more quickly to market changes.
Simplifies administration for both billing authorities and ratepayers.
HM Treasury’s “Transforming Business Rates” programme acknowledges these barriers and is exploring options such as:
Moving from a “slab” approach (where crossing a threshold triggers a big jump) to a “slice” approach (where rates apply progressively).
Strengthening Small Business Rate Relief.
Creating a more predictable appeals landscape to reduce uncertainty and administrative burden.
Why These Changes Matter
Taken together, these aspirations reflect a broader principle: councils want greater fiscal autonomy and policy flexibility to shape local economies. They argue that without these reforms, the system will continue to feel like a blunt instrument redistributing resources without empowering places to drive growth. With the 2026 reset and multiplier changes looming, the stakes are high: get it right, and local government could have a more responsive, growth-oriented funding model; get it wrong, and volatility and inequity could deepen.
Why Business Rates Are So Contentious
Business rates have been a lightning rod for debate for decades, and the reasons go far beyond technical detail. They touch on fairness, economic strategy, and the delicate balance between local autonomy and national redistribution. Four key fault lines explain why this tax remains one of the most politically and economically sensitive issues in local government finance.
1. Distributional Tensions Who Gains and Who Loses
Business rates raise substantial sums £26.4 billion was collected by English authorities in 2024–25 after reliefs and adjustments but those yields are highly uneven across geography and sector. Urban areas with strong commercial property markets generate far more than rural or coastal authorities, creating structural disparities. Resetting baselines and adjusting retention inevitably produces winners and losers, and the equalisation mechanisms tariffs, top-ups, and safety nets are complex and often opaque. Councils fear that a poorly designed reset could strip away growth rewards or destabilise budgets overnight.
2. High Street vs. “Sheds” and Large Assets
The government’s decision to introduce lower multipliers for retail, hospitality and leisure (RHL) from 2026–27, funded partly by a higher multiplier for properties with a rateable value of £500,000 or more, has sharpened the debate. Supporters argue this rebalances the system towards high streets, which have struggled under the weight of online competition and pandemic shocks. Critics warn of unintended consequences: logistics hubs, large offices, and major infrastructure could face steep increases, potentially discouraging investment in sectors that underpin supply chains and regional growth.
This tension reflects a broader question should business rates be a tool for economic policy or a neutral revenue source?
3. Appeals, Volatility and Administrative Burden
The Check, Challenge, Appeal (CCA) process was designed to streamline disputes, but in practice it is widely seen as cumbersome and resource-intensive. Valuation Office Agency (VOA) statistics show significant backlogs on 2023 list challenges, and industry expects a surge of new checks before the list closes in March 2026. For councils, this creates uncertainty in collection funds and complicates forward planning especially when large liabilities are under appeal for years. The administrative burden falls on both billing authorities and businesses, adding friction to a system that many believe should be simpler and more predictable.
4. Revaluations and Transitional Relief Permanent Churn
The 2023 revaluation shifted liabilities across sectors and places, and the 2026 revaluation will do so again. While central government cushions these changes through transitional relief caps and schemes like Supporting Small Business, these measures add layers of complexity and make it harder for councils and businesses to forecast multi-year liabilities. For local authorities, this churn undermines stability; for businesses, it creates uncertainty that can influence investment decisions. The result is a system that feels perpetually in motion, with little long-term predictability for either side.
The Bigger Picture
These fault lines explain why business rates reform is politically fraught. Every adjustment whether to multipliers, baselines, or reliefs reshapes the map of winners and losers. Councils want clarity and fairness; businesses want simplicity and certainty; and central government wants fiscal stability. Reconciling these objectives is the challenge that has kept business rates at the centre of local government finance debates for decades.
Why Central Government Hasn’t Simply Done What Councils Ask
At first glance, giving councils more control over business rates seems logical: it would strengthen local incentives, align funding with growth, and reduce reliance on central grants. Yet successive governments have resisted full devolution of this tax. The reasons are complex and rooted in fiscal, economic, and administrative realities.
1. Fiscal Stability and Equalisation
Business rates are not just a local revenue stream they are a significant component of national public finance. Ministers must balance local incentives against national redistribution and macro-fiscal constraints. If retention were maximised everywhere, wealthier areas with strong commercial property markets would gain disproportionately, while authorities with weaker tax bases could face severe shortfalls. To prevent this, government uses tariffs, top-ups, and safety nets to equalise resources a system that would be harder to maintain under full local control.
For the 2026–27 reset, government has signalled its priority is to update baselines and align resources with relative need, rather than simply increasing retention across the board. This approach aims to preserve fairness while maintaining fiscal stability.
2. Complexity: Multiple Reforms at Once
The reset does not happen in isolation. It coincides with:
The 2026 revaluation, which will redistribute liabilities across sectors and regions.
A structural shift from two multipliers to five (small, standard, two RHL rates, and a high-value rate).
Implementing all three simultaneously raises the risk of unintended consequences such as sudden funding shocks or distortions in business behaviour. To mitigate this, government has introduced technical consultations, guardrails in legislation (e.g., caps on multiplier differentials), and staged updates to ensure changes are manageable.
3. Investment and Growth Trade-Offs
Treasury wants a system that supports investment and productivity, not one that discourages capital improvements. This is why it is exploring reforms such as:
Moving from a “slab” approach to a “slice” approach, which would reduce the penalty for crossing rateable value thresholds.
Strengthening Small Business Rate Relief to support SMEs.
However, moving too fast on tax-setting devolution or granting complete local control could destabilise yields and undermine equalisation. Government is therefore taking a cautious, incremental approach balancing growth incentives with the need for predictable revenue streams for local services.
4. Administrative and Appeals Capacity
The government acknowledges the resource pressures in valuation and appeals, particularly for complex assets such as infrastructure and airports. The Check, Challenge, Appeal (CCA) process remains under strain, and introducing major structural changes without addressing these bottlenecks could overwhelm the system. Policy papers and calls for evidence suggest a desire to improve certainty and capacity before materially changing councils’ control over the tax. This includes reviewing valuation methodologies and investing in VOA systems to handle future demand.
The Bottom Line
Central government’s caution is not simply reluctance it reflects the tension between local empowerment and national stability. Business rates reform is a high-stakes balancing act: move too slowly, and councils feel constrained; move too fast, and the system risks fragmentation, volatility, and inequity. The 2026 reset and multiplier changes are therefore being treated as a phased evolution rather than a revolution.
What Would Be the Benefits if Councils Had More Control?
Even within the guardrails set by central government, giving councils clearer and stronger levers over business rates could unlock significant benefits for local economies and public services. These advantages fall into four main areas:
Sharper Local Growth Incentives
When councils retain a higher or more predictable share of business rates, they have a direct financial stake in local economic growth. This creates powerful incentives for:
Pro-business planning streamlining development processes and supporting commercial investment.
Targeted regeneration reviving high streets, industrial estates, and underused sites.
Strategic sector policies focusing on industries that drive jobs and productivity.
Evidence shows these incentives work: Pixel Financial estimates retained growth above baselines exceeded £1.5 billion by 2019–20, and remains material today. This underlines the value of a system that rewards councils for fostering growth rather than leaving them dependent on central grants.
Place-Based Flexibility for High Streets and SMEs
From 2026–27, permanently lower multipliers for retail, hospitality and leisure (RHL) will replace the cliff-edge reliefs that have characterised recent Budgets. This should offer stability to smaller, street-facing firms. If combined with local discretion over complementary reliefs or targeted schemes, councils could:
Calibrate support for struggling neighbourhoods.
Tailor incentives to local priorities such as tourism, creative industries, or advanced manufacturing.
Reduce reliance on short-term, centrally dictated relief packages.
This flexibility would allow councils to act quickly and strategically, rather than waiting for national policy cycles.
Improved Accountability and Alignment with Need
A transparent reset that updates baselines and separates “needs” funding from “growth” rewards would make budgets more intelligible for residents and businesses. Councils would have clearer planning signals, and communities could see the link between local economic success and local service funding. The Local Government Association (LGA) emphasises this balance and calls for transitional mechanisms to protect services during the shift.
Reduced Investment Disincentives If Design Follows Through
One of the most persistent criticisms of business rates is the investment penalty: improving a property often triggers a higher bill. If reform delivers on Treasury’s stated goals such as:
Moving towards a marginal (“slice”) approach rather than the current “slab” model.
Strengthening Small Business Rate Relief.
Clarifying valuation methodology for complex assets.
then councils could help unlock local investment without sacrificing stable yields. This would make the system more growth-friendly and reduce the perverse incentives that currently discourage property upgrades.
The Bigger Picture
Greater control over business rates would not just be a technical tweak it would reshape the relationship between local government, business, and the state. Done well, it could:
Drive regeneration and job creation.
Make funding more transparent and predictable.
Encourage investment in property and infrastructure.
Strengthen councils’ ability to respond to local economic shocks.
Key Data Points to Ground the Debate
Numbers matter in this discussion they reveal both the scale of business rates and the complexity of reform. Here are four critical data points that frame the debate:
£26.4 Billion Collected in NNDR by English Authorities in 2024–25
After reliefs and adjustments, English billing authorities collected £26.4 billion in national non-domestic rates (NNDR) during 2024–25. Alongside this, £8.6 billion of reliefs were granted, including:
£2.5 billion for retail, hospitality and leisure (RHL).
£2.1 billion for small business relief.
These figures highlight the dual role of business rates: a major revenue source and a policy lever for supporting sectors under pressure.
Five Multipliers from 2026–27
From April 2026, England will move from two multipliers (small and standard) to five:
Small business multiplier.
Standard multiplier.
Two RHL multipliers (for properties below £500,000 RV).
High-value multiplier (for properties with RV ≥ £500,000).
Rates will be set in line with the 2026 revaluation and fiscal context. This structural shift is designed to rebalance the burden towards large assets and away from high streets, but it adds complexity for councils and businesses alike.
The 2026–27 Reset: First Since 2013
The Business Rates Baselines (BRBs) will be updated for the first time since the retention system was introduced in 2013. Government responses were published in November 2025, with further methodology detail expected at the provisional settlement. This reset will redefine how growth rewards and needs-based funding interact a pivotal moment for local government finance.
Appeals Pressure: Up to 100,000 Additional Checks Expected
The Check, Challenge, Appeal (CCA) process remains under strain. VOA official statistics show sustained backlogs under the 2023 list, and industry commentary anticipates up to 100,000 additional checks before the list closes in March 2026. For councils, this means uncertainty in collection funds and heightened risk to financial planning.
Why These Numbers Matter
Together, these data points illustrate the scale and complexity of reform:
Billions at stake for both councils and businesses.
Structural changes that will reshape liability patterns.
Operational risks that could undermine confidence in the system.
They also underscore why councils are pushing for clarity and flexibility and why government is proceeding cautiously.
Where Does This Leave Councils Now?
As the next phase of business rates reform approaches, local authorities face a planning environment that is both complex and high-stakes. In the near term, most councils will be working across three moving parts:
1. The 2026 Revaluation and Transitional Relief Caps
The 2026 revaluation will reset rateable values across England, redistributing liabilities between sectors and regions. Alongside this, the government has announced transitional relief caps and an expanded Supporting Small Business scheme in the Autumn Budget 2025. Councils must model the impact on:
Local tax bases how shifts in property values affect overall yield.
Sector mix which industries gain or lose, and what that means for local economic strategy.
Cash flow how transitional arrangements will phase in changes over multiple years.
This modelling is critical for budget-setting and for conversations with local businesses about what to expect.
2. The 2026–27 Reset Methodology
The reset of Business Rates Baselines (BRBs) the first since 2013 will redefine how growth rewards and needs-based funding interact. Councils need to:
Engage with MCHLG's settlement documentation as it emerges.
Understand the transitional mechanisms government adopts to smooth redistributions.
Prepare for potential volatility if baselines shift significantly.
This is not just a technical exercise it will shape the financial incentives for local growth for years to come.
3. Operational Risk from Appeals
The Check, Challenge, Appeal (CCA) process remains under pressure, with industry commentary predicting up to 100,000 additional checks before the 2023 list closes in March 2026. Councils must:
Ensure robust NNDR1 and NNDR3 forecasting.
Build contingency for higher appeals activity and delayed settlements.
Monitor collection fund exposure to avoid sudden budget shocks.
This operational risk is often underestimated, but it can have a material impact on local authority finances.
The Stakes
If reform lands well, councils could benefit from:
A clearer split between funding based on need and rewards based on growth.
Permanent support for high street sectors through lower multipliers.
Greater transparency and predictability in local government finance.
If it lands badly, volatility and redistribution could overwhelm the incentives the system was designed to create leaving councils with uncertainty, strained budgets, and limited ability to plan for the future.
Conclusion: Preparing for the Reset
Business rates reform is not just a technical adjustment it’s a fundamental shift in how local government is funded and incentivised. The coming changes, from the 2026 revaluation to the reset of baselines and the introduction of five multipliers, will reshape the financial landscape for councils and businesses alike. Success will depend on preparation.
To navigate this transition effectively, councils should prioritise five critical actions before April 2026:
Model the impact of the 2026 revaluation on local tax bases and sector mix to understand exposure and opportunities.
Review Autumn Budget 2025 announcements on transitional relief and the expanded Supporting Small Business scheme to plan for phased changes.
Engage with MCHLG's provisional settlement and reset methodology consultations to influence outcomes and anticipate redistributive effects.
Strengthen NNDR1/NNDR3 forecasting and build contingency for appeals risk, ensuring resilience against volatility in collection funds.
Communicate upcoming multiplier changes and relief options to local businesses, fostering transparency and supporting economic confidence.
If these steps are taken, councils will be better positioned to manage risk, seize growth opportunities, and maintain service stability during one of the most significant reforms in local government finance in over a decade.
