The Government is seeking evidence on whether the current valuation methodologies used in England and Wales for pubs and hotels remain appropriate and are transparent and reflective of market conditions. There has been significant concern from pub and hotel operators regarding large increases in some 2026 rateable values, raising questions about the consistency and transparency of application of valuation methodologies and as such, whether valuations properly reflect current market realities.
The CfE therefore seeks to better understand how existing valuation approaches operate in practice and the relationship between rateable values, rental levels, trading performance and asset values. It also aims to identify whether alternative approaches could provide a more accurate reflection of rental value while remaining compatible with the established Business Rates framework. Key themes include:
- Transparency: ratepayers should be able to understand how the valuation methodology works, how their individual valuation has been derived, and what evidence has been relied upon;
- Focus on market reality: the Government wants to understand how rents are actually determined in the pub and hotel markets, how trading performance influences rents, whether existing Receipts & Expenditure (R&E) methodologies reflect real-world market behaviour and whether current assumptions remain appropriate; and
- The appropriateness of the assumptions in the R&E methods applied.
Key Issues that pub and hotel operators may wish to highlight in a response
- The Valuation Office Agency uses a formula-based approach to valuation. Applying a standardised approach across such a broad range of assets risks overlooking unique characteristics that impact on rental value;
- By being so closely linked to performance of a group of properties, the current methodology can lead to significant shifts in ratable value between valuation dates;
- Hospitality operators continue to face rising costs, labour shortages and wider economic pressures. Many in the industry argue that current valuation methodologies do not adequately reflect trading conditions on the ground and can produce assessments that bear little resemblance to market reality; and
- Successive governments have recognised the value of leisure facilities, such as pubs, as social institutions and hotels as central to local economies which has been reflected in the targeted support via Retail, Hospitality and Leisure relief and pub relief, for example. It is therefore important to build on that momentum to better support the sector by taking a detailed look at how the current methodology and its alternatives better support that value.
What should the hospitality sector do?
This CfE represents a rare opportunity to influence the methodology that underpins business rates assessments across the hospitality sector. The outcome has the potential to impact the distribution of rates liabilities across pubs and hotels for the next cycle and beyond, making it one of the most important policy developments facing the sector. Ensuring the Government has access to robust, evidence-based analysis will be critical in shaping a valuation framework that property reflects the economic realities of hospitality businesses.
KPMG is in a unique position to provide support. Our combination of regulatory, industry and business rates experience means that we are well equipped to support businesses in developing a robust, evidence-based response to this call for evidence. Please speak to the authors if you would like to discuss this further.
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