Britain’s reliance on bricks and mortar costs has reached a level unmatched anywhere else in the developed world, leaving businesses bearing a disproportionate share of the burden and the Exchequer dangerously exposed to any fluctuations in commercial property prices.
The United Kingdom now spends more on property taxes than any other major economy, with receipts equal to 3.7 percent of the total economy, according to the annual business rates review published by tax firm Ryan. The figure is clearest in France and Canada, both at 3.4 percent, with Belgium and Luxembourg following at 3.3 percent, a gap that underlines how exposed the British system has become to the real estate downturn.
Taken together, business rates, council tax and transaction taxes such as stamp duty now generate about $136 billion ($108 billion) a year for the Treasury, more than France, Japan or Canada raise, and second only to the United States, where total receipts are nearly seven times greater at $855 billion. The latest OECD Income Statistics confirm Britain’s leading position among advanced economies.
Just under 11 per cent of every pound the Government raises in taxes now comes from property – the third highest share among advanced economies, behind only South Korea at 11.8 per cent and the United States at 11.4 per cent. That level of dependence, analysts say, has begun to stifle investment in the kind of tangible, capital-intensive businesses that ministers say they want to attract.
It’s a structural problem, not a measurement problem
Alex Probyn, the leader of Ryan’s practice, said that the combination of persistent inflation, the end of the end of the pandemic and a series of policies pushed the receipts, in fact, caused congestion in the creation of taxes.
“The corporate sector bears a disproportionate share of the overall tax burden, and that is starting to weigh heavily on investment, particularly in sectors that rely on physical assets and long-term capital,” Probyn said. “Property taxes in the UK are very high by international standards, and the system is designed in such a way that it continues to increase yields over time. That creates a clear tension between the need to raise income and the need to support investment. That balance has to be addressed.”
The Government’s review of business rates in England, Wales and Scotland, which came into effect this April, is expected to push prices up to £37.1 billion in 2026-27, up from £33.6 billion the previous year, a rise of £3.5 billion in one year. Business Matters has already reported a £1.56 billion rise in interest rates across all sectors of the economy.
Probyn warns that the Exchequer’s financial dependence on these revenues is itself an obstacle to reform. “This is not just a question of measurement. It is a matter of structure,” he said.
Backlog of complaints reaches 40,000 as SMEs go to the wall
Pressure on businesses has been compounded by a logjam at the tax office, HM Revenue & Customs, the agency responsible for setting duty-free rates. About 40,000 firms have filed appeals against their revised bills and are still awaiting hearings, the Financial Conduct Authority is looking at other challenges from tour operators hit by the penalty hikes on their billed rates.
The average waiting time is now 11 months, during which firms must continue to pay the maximum amount. Some businesses have waited up to 18 months for an assessment – a delay that has forced several companies to close before their case is heard. The squeeze helps explain why nearly 5,500 small firms have appealed to the Chancellor to stop what they call an “apocalyptic” analysis, and why business value complaints have fallen flat, with many owners deterred by the cost and difficulty of challenging their debts.
On top of all this is rising energy costs from the war in Iran, which broke out at the end of February. Three out of five companies say the merger has forced them to freeze hiring and investment plans, which is the exact opposite of the growth story ministers are trying to sell.
A decision from the highway
For SME owners on Britain’s high streets and industrial estates, the message from the data is unequivocal: the country’s tax system is increasingly skewed towards firms that take over land, hire workers and pay rates to local authorities where they trade. Until the ministers understand the issue of structural reforms, rather than talking about easing the margins, the burden on physical businesses will continue to rise, as will the risk that the next drop in property prices will reduce public finances as well.
