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Business rates review dashes high street hopes

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The hotly anticipated business rates review published today was less root-and-branch reform than a collection of tweaks and concessions.

27th Oct 2021
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Business rates have been one of the most heated issues for high street businesses for years, which encouraged the Conservative Party to promise significant reductions in its 2019 manifesto. The business rates review was set in motion in March the following year, just as Covid-19 shutdown businesses across the land. With 100% emergency rates relief and numerous grant schemes in place from local authorities, the government issued an interim report at the March 2021 Budget that failed to satisfy any of the interested parties.

The review reached fruition of a kind this afternoon, as the Chancellor announced £4.6bn more in business rates concessions, accompanied by a Budget consultation document.

The hated inflation-linked multiplier will be cancelled for 2022-23 and revaluations will be accelerated to every three years from 2023, but the proposals failed to live up to retailers’ hopes for radical reform. 

Latest concessions

In summary, the consultation document set out the following concessions for business rates in the next few years:

  • The business rates multiplier will be frozen for a second year from 1 April 2022 until 31 March 2023, keeping the multipliers at 49.9p and 51.2p.

  • An additional 50% business rates relief will be available for retail, hospitality and leisure properties for 2022-23 up to a cap of £110,000 per business.

  • A 100% improvement relief for business rates will exempt occupiers from paying extra rates where improvements increase the property’s rateable value. The improvement relief will take effect in 2023 and be reviewed in 2028.

  • 100% business rate exemptions for onsite renewable energy generation and storage equipment, and a 100% relief for eligible heat networks - one of the few Budget measures to support the decarbonisation of non-domestic buildings.

  • Starting in 2023, business rates revaluations will take place every three years instead of every five. This will make the regime more responsive to economic changes, the Treasury said.

As several accountants noted on Budget day, the business rates review only applies to England. Responsibility for setting the rates is devolved to Scotland, Wales and Northern Ireland. Scotland already has a discount in place for the retail/leisure sector capped at £110,000.

Get the latest Autumn Budget analysis at AccountingWEB Live Expo

In a figure frequently repeated in government communications, freezing the multiplier will add up to savings for businesses of £4.6bn over five years - a chunky concession to a hard-hit sector. Yet tweeting on behalf of the New West End lobby group, retail CEO Jace Tyrrell commented, “All this results in a cut of around £1bn each year on a £25bn business rates bill. That's around a 4% cut. This falls far short of a fundamental review. It is a very disappointing outcome.”

EY’s head of tax policy Chris Sanger and Blick Rothenberg director Simon Rothenberg both had similar views. “The Chancellor removed next year’s inflationary increase and finally addressed a long-awaited anomaly that penalised improvements for greening buildings,” Sanger said. 

“With revaluations moved to every three years, the Chancellor has improved the system. However, beyond the immediate cut, this still leaves retailers paying almost five times more in business rates than their share of the economy. The half price offer for the next year will help, but does not address the long-term issue.” 

Source of the problem

The inflation-based multiplier has been kicking around since 1990 and over the past 30 years it has increased business rates to roughly 50% of the rateable value. Online retailers are spared that burden, further increasing their competitive advantages over shops operating from physical premises.

The disparity might explain the government’s willingness to ease the burden on businesses that operate from properties during the pandemic, but rates also raise £25bn a year to support local government spending. 

As the Chancellor made clear in his introduction to the report, “The review reaffirms the importance of rates and their central role in the tax system. 

“While the government plans to bring forward several substantive changes to improve the system, we see little value in ripping the system up and starting afresh as has been suggested by a small minority. However, we will continue to consider the arguments for and against an Online Sales Tax which, if introduced, would raise revenue to fund business rates reductions. We will consult on that shortly.”

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By C.Y.Nical
28th Oct 2021 14:52

I was a chartered surveyor for many years. The biggest problem with the UBR system apart from the multiplier has always been the lengthy intervals between reviews of rateable values. This crystallises rateable values which then remain static for many years regardless of changes in demand and the true rental value of premises. There have been numerous promises to reduce the interval and now we have another. But the cost and difficulty of a review are wildly underestimated by anyone who hasn't been through one. The Valuation Office Agency is under-staffed and from what I've seen it isn't where the best and brightest of each year's crop of valuers go to work. I'll believe in a regular 3-yearly valuation review cycle when I see it.
And anyway, who is going to believe any promise made by the current Prime Minister and his cabinet? Not me, for one.

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