Burnham risks ‘breaking manifesto’ without business rates reform

Andy Burnham has been warned that he risks breaking Labour’s manifesto if he does not go further in his plans to overhaul the business rates system. 

The Prime Minister-to-be has been urged by hospitality and retail industry figures to expand his plans to modify a business rates system which they say unfairly disadvantages high street firms against online operators. 

Allen Simpson, the chief executive of trade body UKHospitality, told City PM that the former mayor of Greater Manchester would be breaking Labour’s manifesto if he did not commit to root-and-branch reform of the tax.

“It is vitally important that the government carries through its manifesto promise to scrap the business rate system and replace it with something else,” he said.

“If we come out of this parliament without having fixed the business rates system, [then] the 130,000 job losses in hospitality will be much, much worse.”

The Prime Minister-to-be has said he will stick to the fundamentals of Labour’s 2024 election manifesto, which includes a pledge to “replace the business rates system”. 

The manifesto, drawn up under outgoing Prime Minister Sir Keir Starmer, pledges to introduce a new system which would “level the playing field between the high street and online giants”. 

Labour has long been criticised by hospitality and retail leaders for its changes to the business rates system, which they claim do not go far enough to honour the manifesto’s pledge to “replace” the tax.

Burnham has already committed to expanding business rates relief to more small companies, in exchange for hiking tax on out-of-town warehouses. 

This proposal is “a good start,” Simpson said. But he urged the incoming Prime Minister to go further by cutting business rates bills for large hospitality operators as well as small firms.

“Our tax system doesn’t pick on small business; it picks on people-heavy business and place-heavy business,” he said. 

Simpson claimed the existing business rates system acts as a “sin tax” on community-based businesses. “It encourages you […] to shut down your restaurant on a high street and open a dark kitchen on an industrial estate,” he added.

A coalition of trade bodies including UK Hospitality, the Institute of Directors and the British Independent Retailers Association has called on Burnham to introduce a new “hybrid” business rates system. 

As well as supposedly advantaging online retailers, the Real Rates Reform Alliance says the existing system is unfair because it is based on the property value, not profitability, of businesses.

The Treasury could cut business rate bills for bricks and mortar firms by 37 per cent by applying a two per cent tax on online sales, the group claims. 

Its chair, Ros Morgan, told City PM that she has spoken to Burnham’s team and is attempting to set up a meeting with the Prime Minister-to-be. 

She said this business rates proposal would “make an enormous difference to his leadership, the finances of the country and also in terms of business growth and employment”.

Labour’s previous changes to the business rates system have been “sticking-plaster solutions,” Morgan said, which caused more “confusion” for companies. 

Changes to business rates announced by Rachel Reeves at last year’s Budget sent bills soaring for thousands of hospitality firms, prompting a row which forced the Chancellor to offer a £300m relief package to pubs.

On top of pressure over business rates, Burnham is also facing calls to cut value-added tax (VAT) from 20 to 10 per cent for pubs, bars, cafes and restaurants.

Some hospitality leaders backed the Makerfield MP’s leadership campaign because he had previously indicated support for VAT cuts. But his team has refused to confirm whether they would act on this demand.

Andy Burnham’s team have so far not been drawn on their tax plans. A spokesperson told City PM previously they would not write economic policy “off the cuff”.