A campaign for revamping the UK’s business rates system in England and Wales is gathering momentum ahead of a potential Budget date this autumn.
Business leaders from more than 50 companies recently wrote to new Chancellor Sajid Javid with their collective recommendations for reform.
That followed criticism from the Confederation of Business Industry (CBI), which recently labelled the current system “uneconomic and unsustainable”.
Business rates are taxes paid on non-residential properties like shops, offices, holiday rental homes or guest houses, pubs, factories, and warehouses.
If a business occupies a building, or part of one, that is used for non-domestic purposes, it will usually be liable to pay business rates.
HOW ARE BUSINESS RATES SET?
Business rates in 2019/20 are calculated on a property’s rateable value, which is its open-market rental value as of 1 April 2015.
This is based on an estimate by the Valuation Office Agency (VAO), which is calculated by multiplying the rateable value by a multiplier set by the Government.
The rateable value of business properties is adjusted every five years to reflect changes in the property market.
The CBI argues that these long gaps between revaluations mean business rates are lagging behind economic cycles and rises in property costs.
In turn, some businesses in England and Wales have had to absorb sudden increases to their tax bills.
THE MOST RECENT CHANGE
The Government claims it is making business rates fairer, having announced measures to help smaller retail businesses in Budget 2018 last autumn.
For 2019/20, business rates fell by a third for retail properties with a rateable value of less than £51,000. This is set to remain in place for both 2019/20 and 2020/21.
However, the CBI said small changes like this are not enough and called for a full review of the system.
John Allen, president of the CBI, said:
“These tweaks have only served to reinforce the idea that business rates are a high street issue rather than a problem for our whole economy. The more sticking plasters we add, the greater the signal that the system is broken and in need of a fundamental rethink.”
THE UNITED CALL FOR REFORM
Some of the UK’s biggest retailers have joined forces to demand action is taken to revamp the business rates system.
That included several chief executives of supermarkets, food-to-go chains, fashion, homeware, and department store retailers.
In their joint letter to the Chancellor, they called for four fixes that would address many of the challenges posed by the business rates system.
The key change involves transitional relief, which requires many retailers to pay more through business rates than they should.
A freeze in the business rate multiplier, the introduction of a new improvement relief, and adequate funding for the VAO were also put forward.
Helen Dickinson, chief executive at the British Retail Consortium, said:
“These four fixes would be an important step to reform the broken business rates system, which holds back investment, threatens jobs and harms our high streets. The fact that over 50 retail chief executives have come together on this issue should send a powerful message to government. Retail accounts for 5% of the economy yet pays 25% of all business rates – this disparity is damaging our high streets.”
James Lowman, chief executive at the Association of Convenience Stores, added:
“The Government’s first priority should be extending rate relief for more businesses and for beyond the next financial year.”