Autumn Statement: retail experts welcome proposed "structural review" of business rates system

Out-Law News | 03 Dec 2014 | 3:49 pm | 2 min. read

The UK government will carry out a review of the future structure of business rates with a report to be published before the 2016 Budget, the chancellor of the exchequer has announced.

Retail experts and the property industry cautiously welcomed the announcement, but the British Property Federation (BPF) said that the government must be willing to carry out a "root and branch review" of the 400-year-old charge, which is currently the third biggest cost for small businesses after rent and staff costs. In a speech accompanying his 2014 Autumn Statement, George Osborne said that any changes to business rates would be "fiscally neutral".

The chancellor also announced that small business rate relief, which gives discounts of up to 100% on business rates to smaller businesses, would be extended for a further year while the annual inflation-linked increase in business rates would continue to be capped at 2%. However, property tax expert Stuart McCann of Pinsent Masons, the law firm behind Out-Law.com, said that there were "few fireworks" amongst the government's announcements, many of which had been widely expected by the industry.

"Whilst the plans in the announcement will provide more welcome relief for small businesses and those clamouring for a fundamental reform of this controversial tax, the chancellor's plans were widely predicted and stopped short of certain other measures," he said.

"The chancellor's promise for a full review of the structure of business rates has been mooted before, but it is pleasing to hear it confirmed in the Autumn Statement. It will be interesting to hear further details of the scope and timing of the review, but businesses should not expect much movement on this until after next year's general election," he said.

"Consistent with the lack of controversy, the chancellor stopped short of other expected announcements such as a promise to address the remaining backlog of rating appeals and the possible establishment of a working group to consider the plausibility of the regional devolution of business rates revenue, which is currently collected locally, pooled nationally and re-distributed. Some will see that as a missed opportunity to stimulate business growth and regeneration in towns and cities most affected by the recession and austerity measures," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. They are based on a rateable value set by the Valuation Office Agency, with revaluations usually taking place every five years. Industry groups including the BPF have repeatedly called on the government to re-examine the effect of business rates on their businesses, with some saying that the regime disadvantages traditional shop owners compared to their online retail counterparts.

At the 2014 Budget, the chancellor announced a review of the "responsiveness and effectiveness" of the administration of the business rates regime post-2017, when the next revaluation is scheduled to take place. This revaluation was due to take place in 2015 but was postponed to provide businesses with "stability" following the economic downturn. The interim findings of this review are due to be published later this month.

According to this year's Autumn Statement, the extension of the small business rate relief scheme until April 2016 would allow around 385,000 of the smallest businesses to pay no rates at all while a further 190,000 would benefit from tapering relief. The government will also increase the £1,000 'high street discount' for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below to £1,500, while transitional arrangements reducing the bills for properties with a rateable value of £50,000 or below will also be extended.

"The announcements are the latest in a number of initiatives from the chancellor to address concerns over the vulnerability of the high street and the significant burden of the business rates bill borne by retailers, the obvious fallout from which is the high vacancy rates which particularly affect small shops," said retail property expert Andrea McIlroy-Rose of Pinsent Masons.

"However, as expected, there is nothing particularly new or ambitious in the statement and no radical steps were ever expected this close to the election. Further action will be required and a complete structural reform of the business rates system is still the preference for most retailers, particularly those with a physical presence on the high street," she said.