What a potential business rates surtax could mean for retail and hospitality businesses

The prospect of a business rates surtax has reawakened a familiar anxiety in Britain’s retail and hospitality industries.

As the Autumn Budget approaches, the British Retail Consortium has warned the Chancellor that additional business rates could undermine efforts to combat food price inflation. In a letter signed by senior figures at major supermarkets, they argued that further costs for retailers would inevitably be passed on to consumers at a time when households are already under financial pressure. Yet with a widening fiscal gap and growing spending commitments, the Treasury may find such requests difficult to accommodate.

In this article, we explore what a potential business rates surtax could mean for both retail and hospitality and how rising costs in one sector can ripple through the other. We’ll also set out the practical steps businesses can take now to prepare for possible changes in the Autumn Budget.

Beyond the supermarket aisle

Although supermarkets have been the most vocal, any shift in business rates policy announced in the Autumn Budget will reverberate far beyond grocery retail. Hospitality businesses, such as restaurants, cafés, pubs and hotels, operate in the same property ecosystem, and would likely feel the secondary effects of a surtax almost immediately.

If large retailers face higher costs, suppliers, wholesalers and logistics firms could pass on additional charges, increasing prices across the food and beverage sector. For hotels and restaurants already managing rising wages, energy bills and supply chain disruptions, such a move could tighten margins even further.

And consumer spending power is finite. If household budgets are stretched by higher food prices, discretionary spending on dining out or travel could falter. The knock-on effect would be to compound the pressures already facing hospitality, where demand has yet to stabilise fully since the pandemic. For smaller operators, many of which occupy prime high-street locations, any adjustment in business rates could directly affect profitability and cashflow.

What businesses can do now

Rather than waiting for more certainty, the best approach is to prepare early and act decisively. Here are three practical steps that can help retail or hospitality businesses anticipate and absorb any future rate changes:

Model your financial exposure

Run cashflow forecasts under different tax scenarios to understand how higher rates could affect liquidity. For hospitality firms, it’s particularly important to model seasonal fluctuations and occupancy patterns. These can help you identify potential pinch points and manage working capital more effectively.

Explore structural and strategic options

Consider whether your property mix, corporate structure or investment priorities could be adjusted. Opportunities might include consolidating space, renegotiating leases or investing in energy-efficient upgrades that could reduce costs or make you eligible for reliefs.

Review the reliefs available and seek professional advice

Make sure you understand all the business rate reliefs and exemptions you are entitled to. Engaging with expert advisers early can help you identify opportunities to reduce liabilities while remaining fully compliant. For larger organisations, maintaining a constructive dialogue with industry groups or local authorities can give you insight into policy developments and help you shape favourable outcomes.

Planning beyond the next announcement

The Government faces a difficult balancing act: raising revenue without stifling the sectors that underpin employment and local economies. Retail and hospitality are closely intertwined, with one shaping footfall for the other. A business rates surtax would test the resilience of both. But businesses that plan early, review their exposure and build flexibility into their financial models will be best placed to withstand – and emerge stronger from – whatever is announced in the Chancellor’s statement.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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