Rachel Reeves has avoided another damaging rebellion against her economic policies with the promise of a U-turn on controversial tax hikes for pubs in England, after weeks of protest from her colleagues and the hospitality industry.
Government sources said on Thursday the chancellor was finalising a support package for the struggling industry that would include reductions to business rates for pubs, which had been facing a 76% rise on average over the next three years.
Industry figures welcomed news of the U-turn, which comes after similar climbdowns over cuts to winter fuel payments, cuts to disability benefits and a rise in inheritance tax for farmers.
But with the Treasury yet to publish details of the support package, Reeves’s colleagues say they are willing to push ahead with an amendment to the government’s finance bill if they feel it does not go far enough.
Tonia Antoniazzi, the Labour chair of the all-party parliamentary group on beer, said: “I am over the moon, things are moving in the right direction.” But, she added, she and her colleagues were prepared to rebel against Reeves’s finance bill at a later stage if the new support proved insufficient.
A government source said the new plan would “recognise issues with how business rates are collated”, and would be part of a wider package including measures to help pubs with licensing, opening hours and red tape more generally.
Reeves’s decision to back down follows weeks of campaigning by publicans and MPs from across the Commons against changes she made in November’s budget.
The chancellor announced at the time that she would reduce headline business rates for the hospitality industry. But at the same time she announced the end of Covid-era reliefs, which, when combined with a three-yearly revaluation of property values, dwarfed the impact of the rate cut. As a result, pubs were facing an average rise in rates of 76% over three years, while hotels were to go up 115%.
Whitbread, which owns pubs, restaurants and the Premier Inn hotel chain, said it would have to pay between £40m and £50m more in tax as a result.
The move sparked an industry backlash with hundreds of landlords banning Labour MPs from their pubs, causing angst among many for whom the pub was a useful convening space and a refuge from Westminster.
The campaign has proved even more successful than protests by farmers against plans to raise inheritance tax on agricultural land, which also prompted a U-turn, albeit after 18 months rather than six weeks.
Reeves commissioned work before Christmas on a possible package of support for pubs, led by Dan Tomlinson, a Treasury minister, who has been meeting business groups in recent days.
Officials are still working on the finer points of the package, with some business groups calling for a multibillion-pound reduction in VAT while MPs argue for more modest discounts to business rates.
Labour MPs welcomed the fact that Reeves had changed course more quickly on this occasion than in the past, but said the changes should have come as soon as the impact became clear.
“It’s great that the Treasury is in listening mode,” said one. “It’s just a shame it wasn’t listening before.”
Officials defended the delay, saying the combined impact of the revaluation and the removal of reliefs only became clear once the government’s valuation office had sent details of its calculations to individual businesses.
More than 30 Labour MPs were preparing to vote in favour of an amendment to the finance bill on Monday that would have reduced rates for hospitality businesses, in what would have amounted to a significant act of defiance against the chancellor.
Antoniazzi said they would no longer push ahead with that amendment, but would keep it in reserve for when the bill came back at a later stage if they felt Reeves’s changes did not go far enough.
Other MPs said the combined effect of multiple U-turns, often on spending cuts or tax rises, made them frustrated and more likely to rebel in future. “The mood with this one was not anger, we were just waiting for the inevitable U-turn,” said one.
Industry insiders mostly welcomed the changes, though many said they were waiting to see the details before deciding whether to continue their campaign.
Emma McClarkin, the chief executive of the British Beer and Pub Association, said: “News that the government is going to look again at business rates increases is potentially a huge win for pubs across the country and shows government have not only listened to our concerns but acted.”
Others said the package should apply to the entire hospitality industry rather than just pubs. “The entire sector is affected by these business rates hikes – from pubs and hotels to restaurants and cafes,” said Kate Nicholls, the chair of the industry body UKHospitality. “We need a hospitality-wide solution.”
One industry boss criticised the government for failing to realise the problems the budget would cause for the sector, calling it “a monumental avoidable cockup”.
