Doubts over Budget rate action

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There were doubts that Wednesday’s Budget in the UK would see any action taken on business rates for the hospitality sector.

Colliers International said that the government should also consider “discretionary relief” to businesses for Coronavirus disruption.

John Webber, head of business rates, Colliers International said: “Despite all evidence to the contrary, this government seems either unable or unwilling to get to grips with an issue that is creating a major burden on many UK businesses, particularly in the retail and hospitality sectors.

“Last week’s response to the Treasury Select Committee’s recommendations on business rates was very much a whitewash and other remedies the government has so far suggested have concentrated on offering reliefs to smaller businesses,retailers and pubs - doing nothing to alleviate the bigger players  who are the ones closing outlets and cutting jobs.”

Colliers recommended immediately freezing any business rate increases in April 2021. Many businesses have, it said, had to swallow steep business rates rises plus inflation since the 2017 Revaluation. It was not, the broker said, viable that those who had seen big rises should be paying even more.

The government should also abolish downward phasing after the next 2021 Business Rates Revaluation, enabling rate payers to pay their true rates liability immediately and not wait four years to do so.

In addition, it should review and implement a policy to reduce the multiplier. This multiplier for larger properties was currently around 51.2p in the £1- so is now more than 50% tax.  If it could be reduced to around 34p in the £1, as it was in 1990, many of the extremely high rating bills would be diminished into something businesses could meet.

Colliers also recommended looking at and reforming the whole system of reliefs. The current system of reliefs was, it said, incredibly complex and had created business rates deserts in some parts of the country, where due to the system of small business reliefs, some businesses are paying no business rates at all for the services they receive.

The company said that the government had denied this was a problem and argued that reliefs “support certain sectors or incentivise particular behaviours” and listed the Small Business rate reliefs and Retail discounts it offers-so that “675,000 of the smallest businesses pay no business rates now”.

Colliers suggested the government take this under central control and support businesses struggling following coronavirus, with a discretion relief, centrally funded.

Webber concluded: “The 2020 Budget could be a real opportunity for the government to look hard at the business rates crisis and implement some immediate quick win measures to help businesses. Obviously, we would still need to look at some long-term alternatives to help fund local government finances, such as perhaps some kind of sales tax to help level the playing field between physical and internet retail, or even taxing deliveries from internet providers- which would have environmental benefits too.

"But there are things that can be done now. It looks like the government might call for some kind of review, but our fear is that this will only be kicking things into the long grass yet again. The Treasury Select Committee made some sensible recommendations last Autumn, after six months of brainstorming between experts in the industry and businesses. Will Budget 2020 implement these? Or will we see another brushing off of the issue and just some extra reliefs to small retailers and pubs, as we've seen in recent Budgets? Only time will tell. But I'm not holding my breath!"

 

Insight: Once the coronavirus has passed and the sector has bounced back, the issue of business rates is, it is feared, still be present in the UK, with the government seemingly unwilling to act to reform a system which, in 2018/19 bought in £31bn -  much of it heading to local authorities - one of the seven highest-grossing taxes in the UK.

The report on business rates in the UK carried out by the Treasury Committee, described the system as “broken” and called for the government to be “creative” in looking at other options. The report said the tax - based on the estimated rental value of the property - placed greater costs on physical businesses than online traders and had grown as a proportion of the total tax paid by businesses since 1990, when the current regime was implemented.

The government rejected the committee’s views and underlined its support for the existing system of tax reliefs, commenting: “The government does not agree that the number of reliefs available under a particular tax can be taken as evidence that a tax is ‘broken’”.

As Webber said to us, as business rates are a tax on property, not people, they were easier for politicians to raise without fear of a backlash. As he didn’t say to us, but is worth noting, when one has a populist leader, one who has previously said “F*ck business”, reforming rates is not going to be high on the list of expedient activities. Whether our fluffy-haired leader wants to see an empty high street has yet to be confirmed.

One alternative, put forward by Labour and the Liberal Democrats, is a Land Value Tax, which would see the tax paid by landlords, not occupiers. This could have an impact on values and is certain to cause, well, a fuss. This will not endear it to a government with a number of issues on its plate at the moment.

The best that the sector can hope from the Budget for is short-term assistance from the impact of COVID-19. But the underlying sickness will remain.