Business Rates and Rent Hikes Are Crushing Small Firms – Reforms Must Go Further

A Factsheet from

By Liz Barclay

If you run a small business on the high street, chances are you’ve looked at your rent or rates bill recently and wondered: Is this still worth it?

Thousands of small business owners are weighing up the same equation. Overheads are soaring yet footfall is fragile. Rent reviews loom just as customers cut back. And those elusive business rates reforms we were promised haven’t gone nearly far enough for many.

Business rates are based on property value, not your turnover. That means a corner café bringing in £80,000 a year might pay the same, or more, as a big chain store pulling in ten times as much. Even with Labour’s new relief scheme offering up to 40% off for retail, hospitality and leisure, many micro businesses are still paying bills that feel totally out of proportion to their income.

Relief is welcome but it’s patchy and short-term. Some businesses don’t qualify because they’re just above the threshold. Others find the system too complex or unpredictable to rely on. What small firms need instead of a sticking plaster is a complete overhaul. Smaller businesses need a rates system that reflects ability to pay rather than square footage.

Then there’s rent. Commercial landlords still routinely include “upward-only” rent review clauses in leases. These allow them to increase rent at review dates, but never reduce it, even if the economy or the local market is in freefall. Even if your sales have halved, your rent keeps climbing, unless you manage to negotiate a better deal with a sympathetic landlord.

The government has now proposed banning upward-only clauses but as you’d expect there’s some push back with operators in the sector claiming it will “undermine investor confidence.” What undermines confidence for small businesses is being locked into a five-year lease while the cost of living crisis drives down spending and footfall.

Many independent business owners don’t have understanding landlords or lawyers on hand to negotiate lease terms. They sign up because they’re desperate for premises. And once they’re in, they’re stuck, paying rent that might have made sense 5 years ago but now feels wildly out of kilter with today’s business environment.

Some landlords do try to help though so appealing to them may be worth a try. They may consider payment plans or short-term rent holidays. But too often, tenants face silence, and eventually eviction, when all they need is flexibility. There’s a power imbalance.

To revitalise our high streets and encourage local entrepreneurship, we need a system that allows small business owners to manage the ups and downs by: 

• Capping annual rent increases in line with inflation or local economic conditions
• Expanding and simplifying business rates relief so more micro firms benefit
• Offering rent arbitration and mediation services for small tenants
• Supporting community ownership or cooperative leasing models where possible.

Local councils and policymakers need to factor in how vital small businesses are to their communities. They employ local people, mentor apprentices and keep the lights on in town centres.

Small business owners tell me the same thing again and again: “We don’t want handouts. We want level playing fields”. Many are quietly quitting. Others are going online. Some have abandoned the idea completely. Where it works though we see green shoots of rejuvenated high streets where the future once looked bleak. 

We have an opportunity to design a system that gives small firms a fighting chance and they need to be involved in that design. Now’s the time.