Business rates shake-up is biggest in a decade but retailers remain sceptical, says expert

Out-Law Analysis | 20 Nov 2015 | 11:53 am | 2 min. read

FOCUS: The government recently announced the biggest shake-up to the business rates system in England and Wales for more than a decade, but will retailers actually feel the benefit?

The UK has the most expensive business rates in Europe and retailers bear a disproportionate burden of the cost. Indeed, business rates make up around half of all taxes borne by retailers so any proposed changes to rates will have a significant impact on their businesses.

In October, the chancellor proposed abolishing the uniform business rate and giving local authorities some powers over rates in their areas. However, given his previously-announced commitment that any changes to the business rates regime would be "fiscally neutral", retailers would be forgiven for some scepticism that the changes will not have much impact at all.

What has been announced?

On 5 October, the Government announced that:

  • it would abolish the uniform business rate in England and Wales and allow local authorities to reduce rates to attract businesses to their area;
  • the distribution of rates would change, allowing local councils to keep 100% of the proceeds by 2020 - an increase from the current level of 50%;
  • areas with elected mayors would have greater powers, including the ability to increase business rates by up to 2p in the pound, as long as they win the support of local businesses.

The government has also promised to reduce the number of appeals and delays in settling business rates. Taken together the announcements appear to show a government keen to move in the right direction by giving local councils flexibility and the ability to attract businesses to their areas.

However, some retailers have greeted the proposed changes with understandable scepticism about whether they are as comprehensive as they need to be. Retailers who have properties in several different areas also have concerns about complexity and whether it will be harder to set budgets if the multiplier is to vary in each region. There is also the possibility of rates distortion and uneven growth if faster-growing councils benefit from the reforms, whilst those growing at a slower rate could suffer significant disadvantages.

Learning lessons from Scotland

What retailers are seeking is a rating system that promotes fairness and predictability. Given that the English reforms are not expected to be finalised until the 2016 Budget, they may wish to look towards Scotland for an example of how the new regime could work in practice.

Scotland appears to be the frontrunner in addressing the need for business rate reform. Since 31 October 2015, local authorities have had the ability to cut rates to try and boost local economic activity. They can apply the changes in particular geographical areas or to chosen business sectors and will be able to retain all the business rates that they collect in a system similar to that proposed for England.

The timing of these changes will give retailers and retail experts the opportunity to see if the chancellor's announcements are just political stunts to take the pressure for rates reform away from the government and shift the blame for high rates to local councils - or if the changes will have the desired effect of stimulating growth and attracting new retail investment to local areas.

Andrea McIlroy-Rose is a retail and property expert at Pinsent Masons, the law firm behind Out-Law.com.