The government has cancelled a planned increase in business rates next year but ruled out any radical reform of the property tax, prompting criticism from some industry groups.
In his Budget on Wednesday, chancellor Rishi Sunak said he would make another £7bn of rates support available to businesses in England over the next five years, on top of the £16bn provided during the pandemic.
Business groups warned that the chancellor had missed the opportunity to reform rates at a time when companies were facing spiralling costs and higher taxes elsewhere.
Some £4.6bn of the new business rates assistance will come from freezing the inflation component of the tax. The so-called multiplier normally rises each year in line with consumer prices but had already been frozen in the current tax year. That freeze will now be extended until April 2023.
Another £1.7bn of relief will be granted to retail and hospitality businesses in the form of a 50 per cent discount on business rates, also until April 2023, though this will be concentrated on smaller companies.
The remainder of the help will be given to property owners who carry out improvement works or install equipment to improve a building’s energy efficiency; they will see no increase in business rates for the following year.
The measures will offer some relief to companies — already facing steep increases in corporation tax and employer national insurance — until the next reassessment of rateable values in 2023. These are combined with the multiplier to calculate the actual rates payable by a business.
The revaluation will be based on prevailing rents in 2021 and was pushed back a year to better reflect the downward movement in rents in many sectors.
Retail and hospitality executives said the freeze in the multiplier was welcome but the cash cap of £110,000 per business on the discount meant many large companies would miss out.
“If all we are getting is a reduction for small businesses, that is not going to help the high street or big businesses to help them invest,” said Nick Mackenzie, chief executive of brewer and pub operator Greene King. “I am quite disappointed in that”.
Jerry Schurder, head of business rates at consultancy Gerald Eve, said many of the premises eligible for the discount would already be exempt from rates because of small business rate relief.
Chris Wootton, chief financial officer of retailer Frasers Group, said the business rates regime “continues to be significantly out of step with the current reality on the high street”, with rates bills across the group’s 43 House of Fraser department stores being on average double the rent rather than half as the current multiplier implies.
He cited one store in a provincial English city that has been paying no rent since the chain was bought out of administration in 2018 but is still liable for almost £500,000 of business rates each year.
The Conservative government promised to reduce the burden of business rates in its 2019 election manifesto but a Treasury review, launched in March 2020 and concluded alongside the Budget, effectively ruled out radical changes.
“We see little value in ripping the system up and starting afresh as has been suggested by a small minority,” Sunak wrote in the foreword to the review, stressing the £25bn that business rates raise each year in England alone and the relative ease of collecting that revenue.
The government reaffirmed its intention to hold revaluations every three years rather than every five, making the system more responsive to changes in rental market conditions.
The government also said it would consult on changes to transitional relief that would apply after the 2023 revaluation. Transitional relief is designed to smooth out the impact of sharp increases in rateable values, but does so by restricting the impact of falls.
Helen Dickinson, chief executive of the British Retail Consortium, said the proposed changes fell “far short of the truly fundamental reform that is needed and was promised” and would “do little to support the businesses that pay two-thirds of retail business rates and employ 1.5m people”.
Tony Danker, director-general of the CBI, said: “This Budget alone won’t seize the moment and transform the UK economy for a post-Brexit post-Covid world.
“Businesses remain in a high-tax, low-productivity economy with concerns about inflation. But the Budget will have a positive impact across the economy and makes several changes that will be welcomed by UK businesses.”
Federation of Small Businesses national chair Mike Cherry said there were some measures that should help to arrest the current decline in small business confidence.
“But, against a backdrop of spiralling costs, supply chain disruption and labour shortages, is there enough here to deliver the government’s vision for a low-tax, high-productivity economy? Unfortunately not. Where inflation and forthcoming tax hikes are concerned, the clouds are gathering.”
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