Biting the bullet on business rates?

The Autumn Statement contained an unusual number of changes to the business rates system. No fewer than five adjustments to business rates were announced in the text of the Statement. Although most businesses will not see any step-change to their business rate liability as a result of the package, the changes suggest that the Government is paying increasing attention to recent vocal lobbying on business rates.

Boost for small business

The overall effect will be to provide a measure of assistance for the retail sector and for small businesses, two groups which have lobbied extensively regarding perceived injustices around the business rate system.

The extended system of small business rate relief in place since September 2010 has been extended again to April 2015. This will provide for 100% relief for all properties with a rateable value under £6,000, except where the occupying business has additional properties elsewhere. Also, properties which lose their entitlement to small business relief as a result of the business taking on an additional property will be given a year’s grace before their entitlement is withdrawn.

The Government will provide central funding to local authorities to make up for any revenue shortfall, so that local authority funding will not be affected.

Some unhappiness remains at the postponement of the 2015 revaluation, with business representatives disputing the Government’s view that this would benefit businesses overall. This is reflected in the oral and written evidence to the current Business, Innovation and Skills inquiry The UK Retail Sector, which has focused substantially on business rates.

The ‘2% cap’

Businesses have long complained about the annual rise in the multiplier. (This is multiplied by a property’s rateable value to produce the property’s basic business rate liability.) The legislation permits a maximum annual rise in the multiplier equivalent to the Retail Price Index (RPI) in the previous September. The RPI for September 2013 was 3.2%. This is the first time, since the introduction of the National Non-Domestic Rate in 1990, that a rise of less than the RPI figure will take place.

The Government will increase the multiplier by 2% in 2014-15. The British Retail Consortium had campaigned for a 2% cap on the increase in the multiplier for 2013-14, but later abandoned this campaign.

However, under the legislation the RPI figure is used to calculate the small business multiplier. The standard multiplier must then be set at a level which ensures that the existence of the small business multiplier does not lead to any loss of revenue. For 2014-15, the small business multiplier will be 47.1p and the standard multiplier will be 48.2p. This constitutes a rise in the standard multiplier of 2.3%.

Help for retail

The Government has announced a temporary reoccupation discount, to apply to all retail premises, of 50% from the property’s business rates bill. It is anticipated that this will be additional to any other discounts which apply to the property. The property must have been empty for over one year, and the discount will apply for 18 months from the date of reoccupation. However, the new occupants need not themselves be a retail business.

The Government will also provide a £1,000 discount on all business rate bills on retail properties with a rateable value of up to £50,000. This will be a cash discount applied on top of any existing discounts. This discount will have a proportionately greater impact on business rate bills which are already low (and it may reduce some small bills to zero). The discount applies irrespective of the size of the business occupying the property: hence many large businesses may benefit.

Devolved administrations free to pursue own approach

Business rates are devolved to Scotland, Wales and Northern Ireland. The Government’s figures indicate a spend of £1.13 billion on the proposed changes in 2014-15, with spending falling in the following years. 19% of the funding in 2014-15 will pass to the devolved institutions under the Barnett Formula, in the form of ‘Barnett consequentials’. They will be free to spend this funding as they see fit: there is no obligation on them to use it with regard to business rates. The business rates regimes in Scotland and Northern Ireland are governed by separate legislation and are more flexible than the English and Welsh systems, so it is not a given that identical schemes will be introduced elsewhere in the UK.

The future

In the Autumn Statement, the Government provided some examples of the benefits that businesses could expect to see from the package. Some businesses will see substantial differences to their bills in percentage terms, but the cash difference is not likely to rise above around £2,000. The measures are unlikely to deter pressure for further changes to business rates. The British Retail Consortium has described the business rate system as “no longer fit for purpose”, and its chairman reacted to the Autumn Statement measures by saying:

…this is about more than just a one year reprieve, this is an important first step towards a comprehensive reform of the rates system.

The Autumn Statement also committed government to “longer-term administrative reform of business rates post-2017”. It remains to be seen what form this will take.

More detail on business rates is available in the Library standard note Business rates.

Author: Mark Sandford