Taxation: Small and Medium-sized Enterprises

Gregory Stafford Excerpts

Tuesday 3rd February 2026 Westminster Hall

[Gregory Stafford (Farnham and Bordon) (Con)]

I beg to move,

That this House has considered the impact of taxation on small and medium-sized enterprises.

It is a pleasure as always to serve under your chairmanship, Mr Dowd, and I am grateful to colleagues for attending this debate. Small and medium sized-enterprises are the backbone of our economy. They create jobs, sustain local communities and keep our high streets alive. However, since the autumn Budget 2024, they have been met with higher taxes, higher costs and a Government who appear indifferent to whether they survive at all.

It is almost impossible to know where to start with this debate, given the Government’s complete failure on the economy and sustained neglect of business and enterprise. The Prime Minister speaks the language of growth, but lacks the backbone to take the decisions needed to achieve it. If the debate were simply an exercise in cataloguing failure, we would be here all day. Instead, I will focus on the real-world consequences of that incompetence for the small and medium-sized businesses that keep our economy moving.

In my constituency, I repeatedly hear the same message from business owners about staffing pressures, soaring energy bills and rising financial costs, which in many cases have more than trebled as a direct result of decisions taken by this Government. That is not anecdote; it is reflected clearly in the data. Research from Xero shows just how precarious the situation has become: two in five SMEs do not even know whether they were profitable last month. That is not confidence; that is business flying blind.

Since the 2024 Budget, Labour has made a deliberate political choice to increase the burden on retail, hospitality and leisure. Those are not marginal sectors—they are the lifeblood of our town centres, as major employers and key drivers of local economic activity.

[Peter Fortune (Bromley and Biggin Hill) (Con)]

Last week I was lucky enough to host a roundtable with some SMEs from Bromley, including the excellent Martin from the Crown and Anchor. They said to me that this Government’s policies, including the jobs tax, are restricting their ability to grow and to hire young people. Would my hon. Friend agree that abolishing business rates would give small businesses the boost that they need to thrive?

[Gregory Stafford]

I entirely agree with my hon. Friend. Like him, I have held roundtables with hospitality businesses, which are saying the same thing as others: they want to see a cut in business rates. The Conservative pledge to entirely scrap business rates for businesses with bills under £110,000 is the right step and would be welcomed by business. I hope the Minister will take up that idea; good ideas should be taken up by the Government, but they seem to have a problem with doing that.

In mentioning business rates, my hon. Friend reminds me that the Labour party manifesto—which I am sure you read, Mr Dowd—pledged that

“Labour will replace the business rates system, so we can raise the same revenue but in a fairer way.”

That clearly has not happened, because businesses are being hammered.

[Rachael Maskell (York Central) (Lab/Co-op)]

I am grateful to the hon. Member for securing this debate. I held a business rates summit in my constituency last week, and what came across is that in York we are seeing an average increase in business rates of 35% compared with the national average of 19.4%, so there is a geographical element to this issue too. Does he agree that we need to revise the whole system, not least because a profit-related tax or a turnover tax could bring in more revenue and cost small businesses far less?

[Gregory Stafford]

I hope the Minister is listening; this is a problem not just for constituencies in the south but across the country. It is not just Conservative or Lib Dem Members raising the issue—clearly Labour Members have the same problem. The Minister should look at all good ideas, but current Treasury orthodoxy is to carry on with what it is doing, and to tax anything that looks like enterprise, business or job creation, which will destroy our economy and harm our high streets.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Gentleman for bringing this matter forward, and he is absolutely right to outline this story. To reinforce the point, the Chancellor and the Finance Minister in Northern Ireland have rightly rolled back the proposed enhanced taxation because of its impact on tourism. However, that feels more like a stay of execution than a solution. This is happening everywhere, not just in England but in Wales, Scotland and Northern Ireland, to a great degree. Does the hon. Gentleman agree that the number of small uplifts—in rates, national insurance contributions, the price of goods and so on—can no longer be absorbed by knife-edge profit margins, and that unless we stop these tax rises, which is the Government’s responsibility, our local economy will pay a deadly price?

[Gregory Stafford]

I thank the hon. Member for, as always, bringing his experience from Northern Ireland. That emphasises the point that I was making: this is a whole-country problem. He is absolutely right that we are on a knife edge. We are at a tipping point for our small and medium-sized enterprises, and if they go under, the consequences will be dire. If one wants to speak Treasury speak, that means the Treasury will actually raise less money. The only way that the Treasury will raise more money is by freeing up businesses to expand, grow and employ more people. That is how we will get our economy going, not by taxing every single business until the pips squeak.

I turn now to hospitality, which has been a focus of mine since I was elected. It underpins community life and provides work for young people and for those who rely on flexible hours. Yet the Government slashed retail, hospitality and leisure relief from 75% to 40%—an ideological and damaging decision—which will be followed by eye-watering increases in rateable values from April this year.

UKHospitality data shows that the average pub will see its business rates rise by 15% in the first year, climbing to a 76% increase by year three. At the same time, online and out-of-town competitors are being protected. Distribution warehouses used by online giants will see increases of just 9% in year one and 16% by year three. This is not a level playing field; it is actively tilted against the high street.

The Government’s so-called emergency pubs relief, announced this year, does little to address the scale of the problem. It is a sticking plaster, not a solution. Just one in 20 retail, hospitality and leisure businesses will benefit, and even then the average pub will still be paying £5,700 more in business rates than before.

Business rates are simply not being reduced, and those pressures are compounded by the changes to employer national insurance contributions introduced at the 2024 Budget. For the hospitality sector alone, that amounts to £1 billion every single year. More than 774,000 hospitality workers have been dragged into employer national insurance for the first time, disproportionately affecting part-time staff such as bar workers and waiting staff. Flexible work is being punished. Young workers are being hit hardest, and employing people is becoming more expensive at precisely the wrong moment. That is not pro-growth and it is not pro-work.

VAT policy has also failed small businesses. The £90,000 VAT registration threshold actively discourages growth and creates perverse incentives for firms to cap expansion. The Government have ignored repeated calls for a reduced VAT rate of 12.5% for hospitality, a policy that would support growth, improve competitiveness and align the UK with many of our European neighbours. The refusal to act is holding back an entire sector.

The Parliamentary Private Secretary, the hon. Member for Hitchin (Alistair Strathern), is chuntering from his seat. I am sure he will be able to hold his own debate at some point to tell us all what is going on in his constituency. I suspect that, if he were honest, he would tell us about the impact that his Government’s policies have had on the sector, and how they are absolutely destroying his high street, as they are mine.

These pressures are not theoretical; they are being felt by real businesses across my constituency. For example, at Birdies café in Farnham Park, business rates have increased by 450%—from £290 to £1,600 a month—a change that has already cost the business a member of staff. Energy bills have risen from £300 to £400 a month to £3,500 a month, while rising wage costs and changes to employment law have forced the owner into rolling three-month contracts—a worse outcome for workers, driven entirely by the Government’s pressure and policies. At the Bat and Ball pub, business rates are doubling from £800 to £1,600 a month. Minimum wage changes have added £56,000 a year to its wage bill.

Across my constituency, community businesses such as the Antiques Warehouse, the Packhouse, the Bluebell pub, Serina, the Six Bells, the Healy Group, and Hamilton’s in Farnham; Acorns Coffee, the Dairy, Issaya and Smallworld IT in Bordon; Oliver’s café and wine bar and Davids menswear in Haslemere; Passfield Stores in Passfield; Little Latte in Tilford; the General Wine Company and Stedman Blower in Liphook; and the Greatham Inn in Greatham have all written or spoken to me and are facing the same relentless squeeze from Government tax and regulatory decisions. These are not failing businesses; they are community anchors being priced out by this Government’s policies.

These issues are not confined to hospitality. Yesterday I met representatives of Medicines UK to discuss the impact of Government policy on suppliers of generic medicines. They raised serious concerns about the extended producer responsibility packaging tax. Packaging is obviously mandated by the Medicines and Healthcare products Regulatory Agency for safety reasons, leaving companies with little ability to reduce their tax liability. As a result, costs are either absorbed or passed directly on to the NHS and therefore the taxpayer.

[Peter Fortune]

I know that my hon. Friend is talking specifically about businesses and enterprises, but on that last point, the decisions taken by the Government are also impacting charitable institutions. Indeed, I have met some in my constituency of Bromley and Biggin Hill that are having to let charitable staff go, which is having a further impact on the NHS.

[Gregory Stafford]

My hon. Friend is absolutely right. One perverse outcome of the many taxes that the Government have put on is that although the NHS is, rightly, exempt from some of these tax rises, those who operate around the NHS—for example, care homes, hospices and other charitable institutions—are being hit. Even GP surgeries are being hit. This is the nonsense that we are seeing from this Government: people taking policy off the shelf from Treasury civil servants without understanding the real-world impact that it will have on businesses, the charitable sector and, in general, our constituents.

As my hon. Friend suggests, these are taxes on the NHS by another name. Extended producer responsibility sits alongside the VPAG—voluntary scheme for branded medicines pricing, access and growth—levy, which takes 10% to 35% of NHS sales from manufacturers. If the measures are taken together, the Government are heavily taxing lifesaving medicine, often at higher rates than in comparable systems overseas, with clear implications for supply and sustainability.

In my November debate on alcohol duty—which I am sure you read in detail in Hansard, Mr Dowd—I was disappointed by the Exchequer Secretary’s dismissal of the impact of tax rises on hospitality. Since October 2024, 90,000 hospitality jobs have disappeared. If that many jobs had gone from a car plant or an oil refinery, the House would be in uproar, but because it is pubs and cafés, Ministers look the other way. That is a scandal.

[Mr Angus MacDonald (Inverness, Skye and West Ross-shire) (LD)]

The Scottish Affairs Committee is doing an inquiry into the viability of high streets. We heard from a professor at Glasgow University who specialises in the subject, and he made an extraordinarily convincing case that Amazon is basically being subsidised by the high street—that Amazon is being hugely undertaxed and the high street is being overtaxed. Would the hon. Gentleman support me in asking the Minister to look into that subject and the cost of whether it is actually killing the high street?

[Gregory Stafford]

The hon. Gentleman makes an interesting point. It would be fairer to see some equity between the online providers and the retailers that are physically on the high street and that have to pay things like business rates. I can see the Minister has heard his point and, I am sure, will respond to it; whether the hon. Gentleman will get the answer that he wants, I am less certain.

To go back to my point, because it is pubs and cafés that jobs are being lost from, Ministers look the other way, which is a scandal. I urge Treasury Ministers to review the cumulative burden placed on small and medium-sized enterprises through tax and regulation. I will take any response from the Minister today directly to the hospitality roundtable that I am hosting this Friday with publicans, restaurateurs and café owners.

I will return to where I began. The Prime Minister talks about growth, but refuses to show the backbone required to deliver it. The Government’s failure on business and enterprise is not abstract; it is written into higher taxes, lost jobs and boarded-up high streets. If Ministers continue to ignore that, we really could spend all day listing the consequences.

With the spending review now replaced by an Office for Budget Responsibility forecast, the Government have eight or perhaps nine months before the next autumn Budget. I urge them to use that time wisely. Boost business; do not blight it. Support SMEs; do not punish them, because when local businesses fail, communities pay the price.

--- Later in debate ---

[Dan Tomlinson]

I thank my hon. Friend for her question and the representation that she provides in this place for the small businesses in her constituency—it is a wonderful part of the world. If my team have not been in touch already today, I am hoping that we can find time to meet next week for a conversation. I know that this issue is one that is really important to her. York is a fantastic, vibrant and growing part of our economy. I expect that some of what is happening here is that the businesses in her constituency have seen their values increase by more than others in parts of the country that have not been doing as well. That is why the Government have provided a range of support for businesses. I look forward to talking about that with her in the coming days.

We are fast running out of time, so let me turn to the topic of business rates, which Members have raised. It is worth noting that we are implementing significant reforms to the system. On the point around large online retailers, as far as I am aware, throughout the whole history of the business rates system—including the 14 years under the previous Government—the multiplier, otherwise known as the tax rate, for large online giants was exactly the same as that paid by a typical business on the high street. As part of fulfilling our manifesto commitment to reform the business rates system, we have introduced a really significant wedge into it: the multiplier for large online giants and their warehouses is now 33% higher than for a high street business.

I am aware, and we have had lots of discussions about it in this place, that that reform—the significant underlying reform to the business rates system—has happened at the same time as the revaluations since the pandemic have come into place, and at the same time as the Government have chosen to unwind, slowly and with significant transitional reliefs, the temporary pandemic support. That issue was raised by the hon. Member for Farnham and Bordon.

When the Conservatives stood for re-election, the OBR forecasts did not earmark any funding whatsoever for continued support within the business rates system for our high streets. The Conservatives say now that they would not have stuck with those plans, but had they done so—and they are the plans that they presented to the country before the election—the relief would have ended overnight in 2025.

[Gregory Stafford]

You are in charge now.

[Dan Tomlinson]

Yes, and we extended the relief by a year, at a lower rate, and now, rather than ending it overnight, we have introduced significant transitional relief, so many of the businesses in the hon. Member’s constituency will see their increases, if they experience increases, being capped at 15%.

Overall, across the system as a whole more than half of businesses are either seeing their bills flat-falling or staying at zero, and this tax change—this 33% wedge that has been introduced to the system—is, in effect, a transfer of almost £1 billion in business rate liabilities away from the high street and towards the largest businesses, which have properties worth £500,000 or more. This transfer will benefit 750,000 smaller properties on our high streets.

Pubs have also been mentioned. We saw 7,000 pubs close over the 14 years between 2010 and 2024. I am aware that pubs, and indeed all hospitality businesses, experienced challenges, particularly in 2022 when inflation surged to 11% as energy costs went up. To be clear, that was in large part a result of Putin’s illegal invasion of Ukraine and the impact it had on the global economy, but inflation did rise significantly, which impacted individuals and their bank balances. The Government understand that times are tough for businesses on the high street, in part because of that legacy.

The hon. Member for Farnham and Bordon mentioned some statistics about pubs that are now out of date because of the change that was introduced last year; the 76% increase is not going to happen any more. In fact, three quarters of pubs, live music venues and other businesses affected by the changes that were announced last week—

[Gregory Stafford]

It is delayed.

[Dan Tomlinson]

Three quarters will see their business rates fall or stay the same this year. Then, those rates will be frozen for two years. The crucial point, which relates to whether it is delayed or not, is that we are launching a review of the methodology that is used to assess pubs. I am sure that this issue will have come up in the roundtable on business rates organised by my hon. Friend the Member for York Central (Rachael Maskell) with businesses in her constituency, and in the engagement that other Members have with businesses in their constituencies.

Pubs are valued in a relatively distinct way: their takings are used to assess their value, rather than their floor space. That can be quite opaque for pubs. It can also mean that increases in their business rates can appear to be the result of higher takings but really just reflect underlying increases in higher costs, so they can feel like they are running to stand still. We will therefore look closely at the methodology used to value pubs, and hotels, and I hope that we can find a long-term—indeed, permanent—solution in time for the next revaluation, which will come in 2029, as planned.

I will respond briefly to the point that was made about the increase from £800 to £1,600. I urge the hon. Member to check with the particular pub that he mentioned, but I assume it will be the case—each business is different, and I should not comment on individual businesses precisely—that the 15% relief will probably apply there too now, so there should not be a further £800 increase. I note, of course, that there is an increase for that business, as he set out.

We are also publishing a high streets strategy. We will work on that in the coming months and it will be a cross-Government effort. Yes, the Treasury will be involved, but so will Departments such as the Home Office, so that we can support businesses that are struggling with shoplifting. We will also work with the Department for Business and Trade, and with the Ministry of Housing, Communities and Local Government.

I hope that I have responded to a range of points that were made in the debate, and I thank Members for their contributions to it. In the coming months, in my role as Exchequer Secretary I will of course continue to engage with businesses—small and large—on the important points that have been raised today, to see what more the Government can do to support them as they seek to grow, to support employment in their communities, and to support the life and vibrancy of our high streets and town centres.