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Budget 2017 – time to give business rates the boot?

02 Mar 2017

Business rates have long been a popular topic in autumn statements and budgets of the past. They have been criticised as outdated and seriously limiting to independent store owners. However, they prove lucrative to the Treasury, so it’s little wonder that the Government is constantly battling the right to keep them. In last year’s Budget, the Chancellor announced that from April 2017, small businesses that occupy property with a rateable value of £12,000 or less, will pay no business rates. But, is it now time to think about overhauling the system completely?

The controversial issue

New valuations which are due to take effect in April for small companies in England were designed to help business get “a fairer deal”, however, it looks as though many are going to be left out of pocket. The business rates system has long been criticised as outdated – perhaps demonstrated by the fact that a small independent high street store can pay an extortionate amount of rates compared to an online counterpart – such as Amazon, for example.

Business rates in England and Wales are being updated to take property values into account and business owners are starting to worry. The hospitality industry, specifically the pub and restaurant trade, was featured in the media recently asking for more transitional relief to the sector, as on average pubs will see a 15% increase and restaurants a 23% increase across the country. This was seen as a major threat to the overall positive growth to the economy in the UK, but it was denied by local government, who insisted that very few people will be worse off.

The recent revolt

In the run-up to next week’s Spring Budget, a number of organisations have clubbed together to combat the rate rises. These are not just small businesses, some of the UK’s biggest employers have joined in, from the likes of the British Retail Consortium and CBI.

As well as being concerned about the payment of rates, there was also worry around a clause in the new rates reforms, claiming to prevent firms appealing against rate rises.

Replies from the Treasury have been focused on the fact that rates have not been reformed in more than seven years, so actually it has been long overdue. Plus, it is thought that three in four businesses would not see an increase in their bills – but that is one person too many according to the business community’s response.

True, some businesses are expecting small falls in their rates, but around a third are actually expecting sharp increases. Those in the South East of England are most at risk, as businesses in this region are expecting increases of around 40%. Research from the Federation of Small Businesses has revealed that more than a third of small firms expect their rates to increase, 44% expect their rates to rise by more than £1,000 per year and one fifth expect an increase of more than 40%.

What will be the result?

Some businesses plan to pass these costs on to their customers – but this is under some considerable duress. The overall feeling is that outdated rates have forced them to increase prices, which makes them less competitive with their fellow rival businesses who may face smaller rate reviews. According to changes being brought in from 1st April, if you have a property that is worth up to £12,000 in rateable value then you will pay no rates – but from just £15,000 you are liable for the full 100% rate. So you may find that you and your neighbour have similar shops, but just a 25% difference in square footage could mean the difference between paying tapered rates or the full whack.

Hopefully, the Government will finally find some common ground with rate payers and see sense that the system is in need of full reform. We will wait and see what is delivered on the day.

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