Plea comes as analysis warns of £2.7bn tax rise mainly affecting smaller retail, leisure and hospitality firms

Rachel Reeves visiting a cafe in London. More than 252,000 small firms are set to see a big rise in business rates from April next year when a 75% relief ends. Photograph: Aaron Chown/PA

The chancellor, Rachel Reeves, has been urged to keep her promise to ease the pressure from business rates on high street businesses amid warnings of a looming £2.7bn tax hike that would mainly hit smaller retail, leisure and hospitality firms.

More than 252,000 shops, cafes, pubs, restaurants and businesses such as bowling alleys are likely to see a big step up in the property tax from April next year when a 75% relief up to a cap of £110,000 will end, according to analysis from the real-estate intelligence firm Altus Group.

Business rates payers across all property types and sectors will meanwhile share a £545m increase in the tax, according to Altus, based on the consumer prices index measure of inflation – £250m of which will be shouldered by the retail, leisure and hospitality sectors.

Andrew Goodacre, the chief executive of the Bira trade body, which works with more than 6,000 independent businesses of all sizes across the UK, said: “The chancellor has the power to extend the retail, hospitality and leisure relief, which is absolutely vital if high streets are to be revitalised and grow. We urge the government to consider this crucial support for the retail sector.”

Alex Probyn, the president of property tax at Altus Group, added: “Despite the £22bn ‘black hole’ in the nation’s public finances, the chancellor must now prevent a cliff edge for the retail, hospitality and leisure sectors at her upcoming budget whilst also delivering upon Labour’s manifesto commitment to lower the undue burden already placed on our high streets.”

The retail sector has long complained about its business rates bill and the then Conservative chancellor, George Osborne, launched a consultation on reform in 2015. He brought in reliefs for smaller businesses but retailers have called for wider changes to help them fight off competition from online specialists.

Pressure has mounted over the past two years, when an increase in inflation caused business rates to soar while the numbers visiting high streets have yet to recover from the pandemic lockdowns and shift to working from home.

The UK’s September inflation figure, which in September 2023 was 6.7% and this year is expected to be about 2%, is used to decide the annual increase in underlying business rates. Official figures will be published on Wednesday.

In Labour’s pre-election manifesto, it pledged to replace the business rates system in England with a fairer regime, saying the current arrangement disincentivised investment, created uncertainty and placed an “undue burden on our high streets”. However, it has yet to outline what that new system will look like.

A government spokesperson said: “We’re supporting businesses through pledges to make the business rates system fairer, to cap corporation tax at 25% and to publish a business tax roadmap so that future investments can be planned with confidence.”

Last week, more than 70 retailers including Tesco, Marks & Spencer and Ikea wrote to the chancellor calling for a 20% cut to business rates, warning that the property tax could force tens of thousands of shops to shut.

In a letter coordinated by the British Retail Consortium (BRC) trade body, executives are pushing for a “retail rates corrector” on the levy, which is charged by local councils and linked to the cost of rent on properties from warehouses and offices to shops.

The BRC is not calling for a continuation of the rates relief for smaller businesses, instead arguing that a 20% discount for all retail properties would help “level the playing field” for the entire sector, which it claims is paying more than its fair share of tax.

Helen Dickinson, the BRC chief executive, said the government “must avoid a business rates cliff edge” when the current relief scheme for high street businesses comes to an end.

She said: “The biggest barrier to local investment by any retailer is the broken business rates system, which prevents the creation of new shops and jobs.”

A 20% discount would “fix the disproportionate burden on our high streets for good”, she added.

BRC research suggests that retailers are paying 7.4% of all business taxes despite accounting for 4.9% of the UK’s total economic output in 2023.