Business Rates Reform is Vital for Hospitality Recovery

Hospitality in Wales has just endured some of the toughest years imaginable. Yet, despite a wave of challenges – from rising costs to increasing taxation – there remains an enormous opportunity for the Welsh Government to take positive action that could make a real difference.  

Reforming business rates using the new powers introduced last September is an essential step, and it is a step that must be taken boldly. 

The Local Government Finance (Wales) Act has brought new flexibility, allowing the Welsh Government to adjust how business rates are calculated and to tailor reliefs and exemptions to specific sectors. For hospitality, this is a much-needed chance to address a system that has been fundamentally unfair for far too long. It is very encouraging to see the extension of 40% business rates relief for hospitality and leisure businesses in the Welsh Government’s draft Budget for 2025/26, alongside a cap on the business rates multiplier increase. However, these are only temporary measures, and what we need is wholesale reform. 

Hospitality businesses are taxed at levels far beyond what their turnover justifies. By some estimates, they pay up to three times what they should under a fair system. Meanwhile, online businesses and out-of-town retail centres do not shoulder a proportionate share of the burden. This disparity distorts the market and makes it harder for bricks-and-mortar businesses – pubs, restaurants, hotels – to compete and thrive. The current system has left too many businesses surviving on the back of relief schemes, rather than a sustainable, reformed rates structure. 

The pressure on the sector is immense. The rise in employers’ national insurance contributions and increases to the national minimum wage announced in the last UK Government budget have added significant costs to businesses already navigating soaring energy prices and inflationary pressures. These challenges are hitting margins that are already razor-thin, leaving little room to manoeuvre. Without meaningful reform, we risk seeing closures, reduced staffing, and a diminished offer for visitors and residents alike. 

Yet there is cause for optimism. The new powers under the Act offer a unique chance to use sectoral levers to address the specific challenges faced by hospitality. By recognising the sector’s vital contribution to Wales’ economy, policymakers can take action to provide a level playing field. For example, businesses in hospitality could be categorised as a special sector, acknowledging their particular challenges and their importance to local economies, jobs, and communities. 

There is also scope for geographical levers to target support where it is most needed. Community pubs, for instance, could benefit from reduced rates in rural or deprived areas, safeguarding essential local amenities and promoting social cohesion. Similarly, targeted incentives could encourage investment in new ventures or upgrades to existing facilities, helping to grow the sector and attract more visitors to Wales. 

What’s needed now is bold thinking and decisive action. The opportunity exists to introduce reforms that would give businesses greater certainty and enable them to plan for the long term. Relief schemes provide short-term respite, but they are no substitute for a system that is fit for purpose – one that supports, rather than hinders, a sector so crucial to Wales’ economic and cultural fabric.