Business Rates: tinkering not reforming
This week’s Retail Note analyses the business rates announcements in the Chancellor’s Budget, coupled with the accompanying Business Rates Review, both from a distinctly retail / high street perspective.
5 minutes to read
Key Messages
- The Government will reduce the burden of business rates in England by over £7bn over the next five years
- Making ‘the system fairer, more responsive and more supportive of investment’
- The frequency of business rates revaluations increased so that they take place every 3 years instead of every 5 years, starting in 2023
- The business rates multiplier frozen from 1 April 2022 until 31 March 2023
- The multipliers kept at 49.9p and 51.2p, a tax cut worth £4.6bn over the next five years
- Introduction of a system of sustainability tax relief
- One year temporary business rates relief in England for eligible retail, hospitality and leisure properties, worth almost £1.7bn
- Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23
- But capped at £110k per business.
The proposed reform of business rates has been heralded in some quarters, but from a purely retail perspective, it is deeply underwhelming. Some minor changes and some relief to smaller operators, but nothing that is going to get to the root of the problem. And no mention whatsoever of an online tax to supposedly level the playing field within retail in the Budget announcement itself, only promises of further consultation within the accompanying ‘Business Rates Review: Final Report’ document (question: how can it be a ‘final report’ if matters are still being put out for consultation?). More questions generally than definitive answers.
The positives
The pledges were not all bad by any means, but the positives were largely givens. The frequency of business rate revaluations had to increase, but why every 3 years and why not annually? And why from 2023 and not earlier? Likewise, ostensibly good news that the multiplier is to be kept at its current rate. But the counter argument of many in the retail sector would be that it is already too high.
Introducing relief for properties investing in green initiatives (e.g. solar paneling) is obviously timely and speaks to the ESG agenda. All very laudable, but it will not alleviate existing problems. Most town centre retail stock (high street units and shopping centres) are leasehold rather than freehold, retailers are unlikely to invest in energy improvement measures such as solar panels on buildings that they do not own. Again, it is difficult to see this easing the financial burden in any way.
The £1.7bn sweetener
The 50% reduction was clearly meant to be the show stopping element of the business rates announcement, but it falls short on two counts – it is only for one year and is capped at a business, as opposed to a property level. So, in essence it is only very temporary and will only really benefit small, local operators and independents.
No one would begrudge support to local operators and independents, given the enormity of the challenges they have faced over the last couple of years. At the same time, it is important to recognise the structure of the high street and the fact remains that multiple operators are the mainstays of virtually every retail destination. Indeed, according to the BRC, they contribute two-thirds of total business rate collections. £120k is a drop in the ocean for a national multiple and the argument that they are ‘big and ugly’ enough to not need support does not wash. If the end game really is to make ‘the system fairer, more responsive and more supportive of investment’ with a wider aim and restoring the health of the high street, a temporary capped measure is not the solution.
The big issues
The two burning issues coming into the Budget were whether business rates should be scrapped altogether and the viability of an online sales tax (or ‘Amazon Tax’ as the media have misleadingly dubbed it). The first issue was addressed head-on, the second ducked completely during the Budget itself.
Labour had upped the ante at their recent party conference when Shadow Chancellor Rachel Reeves announced that it will cut – and eventually entirely scrap – business rates, replacing them with a new ‘fairer’ system of business taxation fit for the 21st century. But no more detail on that, the privilege of being in opposition. Sunak explicitly dismissed the prospect of total scrapping business rates as “irresponsible”, reminding us that they contribute £25bn to the Treasury (as if we needed reminding). But despite all expectation to the contrary, not a single mention of the possibility of an online tax in the Budget speech itself.
But plenty of mention (albeit no commitment) in the accompanying ‘Business Rates Review Report’. The possibility of an Online Sales Tax (OST – the first time it has been afforded its own abbreviation?) is clearly still being reviewed, and a consultation will be published “shortly”. Reading between the lines of the report, it is clear that the government is increasingly coming to realise that the issue is highly complex and the ongoing risk is that any form of OST could ultimately penalize those that it is designed to support – multi-channel operators (again, the mainstay of the high street).
Retail is a complex business and I remain to be convinced that the government is even close to understanding the structure of the market and the dynamics of modern-day multi-channel operations. From a retail perspective, the business rate review to date has been underwhelming and hopes of a total reform, for now, appear remote.