The Federation of Small Businesses says the decade-long freeze on aid caps, coupled with old-fashioned changes to shared offices, “directly undermines” the government’s growth agenda.
More than 100,000 small businesses have been drawn into the business rates regime for the first time, prompting the country’s largest group of small businesses to demand an urgent rethink from the Treasury.
The Federation of Small Businesses (FSB) has written to Daniel Tomlinson, the exchequer secretary to the Treasury, urging ministers to lift the cap on when properties must pay property tax, and to reverse a different policy change that leaves start-ups and small businesses in nurseries paying unexpected bills of up to thousands of pounds.
By piling more costs on the smallest companies, the FSB warned, the current regime is “directly undermining the government’s ambitions for growth”, a stark reminder that the chancellor’s pro-growth rhetoric is being tested on a high street like the City.
Business rates are charged on most commercial buildings in England and are calculated on the building’s rateable value, an average of its annual open market rent set by the Valuation Office Agency (VOA). Small single-site firms pay nothing if their turnover remains below £15,000, a threshold that has not fallen in a decade.
That decade of inertia, combined with VOA’s latest round of reviews, means that an estimated 104,000 small business properties were dragged into the tax regime when the new fiscal year began in April. Before taking office in 2024, Labor had floated increasing the small business rate relief threshold from £15,000 to £25,000. Two years on, the FSB wants the chancellor to honor the spirit of that oath.
Raising the bar, the group says, will most benefit firms outside the capital, where property prices keep most properties below the £25,000 mark. “This will take thousands of businesses out of deferred pre-profit tax which we know is holding back growth,” the FSB said, “and these fall in the north-east, north-west, Yorkshire and south-west, where prices, and levels of prosperity, are low.”
The FSB letter also flags what it calls a “growing problem” of companies operating in serviced and shared offices, often small and emerging businesses that have fueled the post-pandemic recovery in the region’s cities.
VOA’s reform of how rates are calculated on such properties, introduced in April and repeatedly implemented, has stripped many tenants of the relief they previously claimed. Others are now staring at backlog demands running into thousands of pounds, an issue that has already sparked warnings from staff that the restructuring could put resource-rich offices at risk in regional markets.
“If this change in methodology from the VOA continues unchecked, the impact will be more concentrated on small businesses and SMEs in the second cities and on the regional economy,” the FSB warned, presenting the change as a challenge to how the rules are applied rather than “a policy decision intended by government ministers”. The party wants the officials to return to the previous way.
Calls for corporate pricing reform are relatively new. Pressure has been mounting across the economy, most recently from manufacturers, who are demanding a £1 billion price bomb as April’s recovery moves into factory debt, and from tourism workers who saw Rachel Reeves accused of imposing a “good publicity tax” earlier this year.
The chancellor is committed to making lasting changes, but the wider overhaul is still in the tall grass. The issue is still dogged by ministers, as the King’s Speech in 2026 has done nothing to assuage business concerns that the political will for meaningful tax reform has yet to be found.
The FSB’s intervention echoes earlier warnings from the tourism group that the tax system has become an “indefensible” investment environment. For the owners of corner shops, salons and small workshops, the math is simple: the tax charged before a dime of profit is earned is a discretionary tax.
A spokesman for the Department of Finance said the government had a “proper economic plan” and pointed to £4.3 billion set aside to support businesses facing high interest rates. For the 104,000 companies now opening a brown envelope for the first time, that number may sound less obvious than the bill on the desk.
