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Methodology note

Replace some high-street business rates: calculation note

Assumptions behind the Replace some high-street business rates scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Replace some high-street business rates

Central fiscal result

+£2.0bn - Net fiscal impact in 2027-28

Low case: -£1.0bn. High case: +£8.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • High-street SMEs lose their business-rates liability.
  • Large online delivery firms face a 4% tax.
  • The model assumes council funding is reimbursed.
  • Warehousing and mixed retailers are ambiguous.

Affected population

  • Affected units are high-street premises, online firms and councils.
  • Business rates receipts are about £34bn overall.
  • The eligible high-street SME subset is much smaller.
  • Consumers face possible online-delivery price rises.

Gross impact

  • Central relief cost is £5bn for eligible premises.
  • Central online-tax yield is £3bn after avoidance.
  • Net central pressure is £2bn.
  • Low case assumes online yield nearly offsets relief.

Fiscal build-up, central case

  • High-street rates relief: +£5.0bn
  • Online delivery tax yield: -£3.5bn
  • Council grant administration: +£0.2bn
  • Avoidance and disputes: +£0.3bn

Central net impact: +£2.0bn in 2027-28.

Behaviour and pass-through

  • Low case assumes broad online base and strong compliance.
  • Central case assumes online tax is partly avoided or passed through.
  • High case assumes wider eligibility and weak online yield.
  • Landlord capture reduces long-run business benefit.

Phasing

  • 2026-27: +£0.5bn. Preparation or partial implementation.
  • 2027-28: +£2.0bn. Main scenario year.
  • 2028-29: +£2.5bn. Behaviour and pass-through develop.
  • 2029-30: +£3.0bn. Steady-state uncertainty persists.

Main source groups

  • Devereux, Griffith and Klemm, "Corporate income tax reforms and international tax competition" (Economic Policy, 2002): Business taxes can affect location, investment and reporting decisions; relevant to pass-through and avoidance risks in targeted online taxation.
  • Department for Business and Trade, "Business population estimates 2025" (2025): The UK had about 5.7 million private-sector businesses in 2025, mostly small firms; sets affected firm context.
  • Office for Budget Responsibility, "Economic and fiscal outlook: business rates receipts" (2026): Business rates receipts are forecast at about £34bn in 2025-26; anchors rates relief scenarios.
  • Reform UK, "Our Contract with You" (2024): Used to define the pledge wording, policy scope and implementation scenario being modelled.
  • Benzarti, Carloni, Harju and Kosonen, "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes" (Journal of Political Economy, 2020): VAT cuts are less fully passed through to consumers than VAT increases in the evidence studied; warns that retail tax cuts may partly raise margins instead of prices falling.
  • Mirrlees and review team, "Tax by Design: The Mirrlees Review" (IFS and Oxford University Press, 2011): The Mirrlees Review criticises inefficient business-property taxation and favours better-designed tax bases; supports reforming business rates, but not necessarily replacing revenue with online taxes.
  • Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.