Not fundamental but nevertheless a welcome review of business rates

Ever since the details of the 2015 revaluation became known, business rates (or non-domestic rates to give them their proper name) have been a political nightmare. Additionally, for rural businesses there is a real disjoint between an excessive business rates bill and the lack of services that those businesses receive! Former Chancellor Philip Hammond tried to reduce the impact in 2017 and 2018 by increasing small business rate relief, adding additional transitory measures and promising to look at reform, but problems persist.

Under current Chancellor Rishi Sunak’s leadership, HM Treasury issued a call for evidence on a fundamental review of business rates in July 2020. This gave us the opportunity to feed in that business rates should be linked to the delivery of local services, be affordable, and help businesses to do the right thing, especially with regard to investment and renewable energy.

The government has stated that it wants to “preserve the benefits of business rates” –perhaps unsurprising given that the levy normally raises over £25 billion a year (receipts were lower in 2019-20 by £11.3 billion due to Covid-19 reliefs). The government has indicated that any changes will make the operation fairer and more effective for businesses.

The really good news is that, whilst no one likes business rates, the government is not changing to a capital values-based tax. Not only would this have been paid by the property owner rather than the occupier, but the link between capital values and the performance of businesses which occupy the premises is even weaker than at rental value.

The other good news is a suite of additional measures on business rates announced:

• The government is freezing the annual increase in the multiplier which means that rates for this year will not automatically increase. This is a welcome move and reflects recognition that just increasing rates every year is not proportionate, especially as all sectors are adjusting to the new norm.
• Rates for smaller hospitality, retail and leisure businesses will be levied at 50% for the year 2022/23. For CLA members operating these businesses – not least through Covid – a further period of business rate relief is very welcome
• Investment in improving buildings will benefit from relief for 12 months on said improvement. We welcome this as, in line with our representations, this will encourage improvements. However, limiting this relief to a year shows a lack of ambition by the government, but it does allow a short-term buffer to at least allow some of the benefit before the rates bill arrives
• There is 100% relief for new onsite renewable energy generation and storage (solar panels, associated battery storage, car charging points and low carbon heat networks). Again, this matches our request to help businesses “do the right thing” and investment in renewables is something that our members have been doing for a while. Having to pay business rates represented a further disincentive to make that investment

Whilst the government is not proposing to change the other reliefs at the moment, they have committed themselves to keep them under review. This enables us to push for extended empty property relief, especially at a time when contractors are difficult to source, and often substantial maintenance and improvement is required between tenants to meet ever rising standards. We will also push for reform of small business rate relief to avoid stair effect and a more gradual taper to reduce the cliff-edge to the top end.

The publication of the valuation list in April 2023 will mark the end of the current regime and thereafter valuations will be on a three-year cycle. Any appeals will then need to be resolved through the revised challenge and appeal process during that three-year term.

All in all, whilst the government was not prepared to take really radical steps for fundamental change – mainly because they need the revenue - there are some good measures that will help in the short term and the excesses of a capital values-based system has been avoided for the time being.