Rishi Sunak must overhaul business rates levied on high street firms if he is serious about tackling the cost of living crisis, the shadow business secretary said on Sunday.

Jonathan Reynolds warned that workers’ pay was likely to be hit as a result of joint pressure businesses were facing from the levy and this week’s National Insurance rise.

The Labour frontbencher told The Telegraph that the current system of business rates was “acting as a tax on growth”, with smaller firms facing sharp rises in their bills if they expanded.

Under the current system of small business rate relief, the bill for a typical hairdresser that expands from one to two sites would increase from £0 to £5,000, while an average shop would go from paying £0 now to £10,000, according to Labour analysis. 

Small business rate relief allows firms with one property with a rateable value of £12,000 or less to avoid paying the levy altogether. Any business that only uses one property is eligible for the relief if that property has a rateable value of less than £15,000.

Mr Sunak used October’s budget to announce a temporary 50 per cent cut in the rates paid by pubs, music venues, cinemas, restaurants, hotels, theatres and gyms. He also scrapped a planned increase in rates for all firms.

But Mr Reynolds said the Chancellor should have provided significantly more help for firms in last month’s Spring Statement.

Less cash available for wages

He said: “The more pressure that a business is undergoing in terms of its costs, whether that’s energy, or National Insurance going up, the less resource they’ve got to put into wages. All the pressure that is added to businesses is going to make the overall position on wages even harder … and that will feed into further cost of living pressures. I just didn’t get a sense from the Chancellor at all that he understood that.”