Heathrow Airport is bracing for a substantial increase in business rates, which could have significant implications for both the airport and its passengers.
- New assessments indicate an annual business rate increase at Heathrow from £200 million to £300 million starting in 2026.
- The airport has engaged in confidential talks with government officials to manage the potential backlash from airlines.
- The increased costs may be passed onto passengers, potentially adding £15 to a family of four’s flight ticket.
- Uncertainty surrounds how political pledges to overhaul the business rates system will impact the proposed hikes.
Europe’s busiest airport, Heathrow, has been involved in covert discussions with Whitehall officials regarding an anticipated rise in annual business rates from £200 million to £300 million over the next three years, starting in 2026. This totals a £900 million increase, which Heathrow has sought to keep confidential to avoid backlash from airlines.
Heathrow, already the largest payer of business rates in the UK, faces the possibility of passing these increased costs onto airlines through higher airport charges. This prospect could aggravate tensions with carriers such as British Airways and Virgin Atlantic, who have long raised concerns regarding high fees.
Given that approximately 80 million passengers travel through Heathrow annually, the proposed £300 million annual increase in rates translates to an additional £3.75 per passenger if airlines pass on these costs. For a family of four, this could mean an extra £15 per flight.
Labour’s manifesto pledge to replace the business rates system might offer some reprieve, but there is considerable uncertainty about how such reforms would specifically impact airports. The current manifesto appears more focused on aiding retailers and high street businesses rather than large enterprises like Heathrow.
A business rates expert at Altus Group, Paul Turner-Mitchell, pointed out that despite promises of a ‘fairer system,’ Labour still intends to collect the same annual revenue from business rates. Similarly, the Conservative party’s commitment to support small businesses and the high street with £4.3 billion in aid over five years is unlikely to benefit large entities such as Heathrow.
A Heathrow insider warned that, should the proposed business rate increases proceed, operational costs could rise by hundreds of millions of pounds, none of which could be reinvested in the airport itself.
Ownership changes could complicate matters further. A Saudi-led consortium recently acquired control of Heathrow, with major stakeholders including the French private equity firm Ardian, Qatar’s sovereign wealth fund, and Saudi’s Public Investment Fund (PIF). These stakeholders now collectively hold around 58% ownership, significantly reducing the British shareholder, the Universities Superannuation Scheme, to a 2.1% stake.
The methodology for calculating Heathrow’s business rates was revised last year, shifting from land and building valuations to profitability assessments. The current charges are based on 2021 financial data, a year heavily impacted by the pandemic, resulting in substantially lower rates than usual. From 2026, the rates will reflect Heathrow’s 2024 financial performance, which significantly improved, evidenced by the airport reporting a £189 million pre-tax profit in the first quarter of this year and achieving record annual passenger numbers for the year ending May 2024.
A Heathrow spokesperson commented: ‘Airports and airlines agree — this decision needs a rethink. Huge hikes in business rates simply increase costs for consumers without adding a single pound of investment to the services they are using. The whole sector wants to see more joined-up thinking between government departments to avoid decisions like this, which only curb our ability to compete internationally and meet consumers’ demands for smooth, safe journeys and progress on sustainability.’
The proposed £900 million increase in business rates presents a substantial financial challenge for Heathrow Airport and its stakeholders.
