Treasury launches "radical" review of business rates
16 March 2015 -
Widely unpopular – and possibly outmoded – tax system in line for major shakeup amid government probe
Bosses of high-street firms great and small could soon experience a fall in their business rates, as the government begins a top-to-toe review of the existing tax regime. During Wednesday’s Budget, chancellor George Osborne will announce a “radical” probe looking into how changes to business rates could relieve financial and regulatory pressures on struggling bricks-and-mortar companies.
English business rates are higher than in any other European Union country and are often the biggest expense to business owners after rent and staff wages.
Affecting 1.8 million companies in England, the current system – established in 1988 – is paid by retailers based on the value of their shops, or other commercial properties, known as the Retail Price Index (RPI). As such, hypothetically, two similar businesses with identical turnovers could be paying dramatically different tax rates based upon the size and location of their outlets, because their holdings would have different “rateable values.” RPI inflation has been higher in recent years, as it is currently based off the commercial property values of 2008 before the market was seriously blighted by the recession.
The review is expected to weigh up the possibility of replacing RPI with the consumer prices index (CPI) measure of inflation to set new rates. Additionally, the probe will assess which purposes owners use their business properties for, what the UK could learn from other countries and how the system could be modernised to better reflect changes in property values.
Lib Dem chief secretary to the Treasury Danny Alexander said: “Our system of business rates was created nearly 30 years ago. Since that time, the worlds of commerce and industry have changed beyond recognition. I’ve been impressed by the representations made by the business community and I know that business rates are a considerable cost.
“The government has taken measures to help businesses by capping rates and introducing reliefs for smaller businesses. But now the time has come for a radical review of this important tax. We want to ensure the business rates system is fair, efficient and effective.”
Debate around business rates has flared up in recent times mainly because of the success of online retailers such as eBay – who do not trade out of high-street premises. According to the Telegraph, the review may look at taking the smallest firms out of the regime altogether, in a bid to protect local, independent shops. It is thought that their exemption from the levy would reduce the government’s take by only 6%.
However, Labour shadow exchequer secretary to the Treasury Shabana Mahmood accused the government of reheating old news. “Britain's businesses need more than just a re-announced review,” she said. “Labour will take immediate action by cutting and then freezing business rates for 1.5 million small-business properties.”
CBI director-general John Cridland was more optimistic: “The current system of business rates is outmoded, clunky and regressive,” he said, “and it's holding back the high street. That’s why we’ve been calling for a wholesale review of the system. This review provides an opportunity to go much further and we’ll be making the case for removing the smallest firms from paying business rates completely, linking rates to CPI rather than RPI and introducing more frequent valuations.”
He added: “This would go a long way to achieving a more competitive business rates regime that incentivises business investment and supports the high street.”
As per earlier announcements, the government has already guaranteed that from 1 April 2015, it will provide greater help for the high street by increasing the business rates discount for smaller retail premises with a rateable value of £50,000 or below to £1,500, up to 31 March 2016. Moreover, small business rate relief will be doubled for a further year to 31 March 2016, and a 2% cap on the rise in the business rates multiplier will be introduced.
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Image of Portobello Road, London, courtesy of William Perugini / Shutterstock.
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