Small business rates to be scrapped but disappointment for large retailers

Rishi Sunak Business rates

Business rates will be scrapped for thousands of small businesses over the next year however there is disappointment that larger retailers will receive no relief, despite heavy campaigning.

Chancellor Rishi Sunak announced that businesses such as shops, cinemas, restaurants and music venues with a rateable value under £51,000 will not have to pay the tax for the next financial year.

The Government previously announced that these businesses were due to receive a 50% discount for the year, up from a previous discount of 33%.

It said it will also extend the removal of rates to leisure, retail and hospitality businesses who previously were ineligible for a discount, such as museums, art galleries, and theatres; Caravan parks and gyms; Small hotels and B&Bs; sports clubs, night clubs; club houses, guest houses.

Delivering his first budget, Sunak said: “That means any eligible retail, leisure or hospitality business with a rateable value below £51,000 will, over the next financial year, pay no business rates whatsoever. That is a tax cut worth over £1 billion, saving each business up to £25,000.

“And it means, over the next 12 months, nearly half of all business properties in England will not pay a penny of business rates.

However, there are 47,928 retail properties in England with a rateable value over £51,000 – with a combined value of £11.32 billion, which will be precluded from the cut, according to figures from Altus Group.

Sunak also told ministers that the Government would increase the current business rates discount to pubs, which have a rateable value below £100,000, from £1,000 to £5,000.

The Government also announced £2.1 billion would be made available for grants of £3,000 for any business which qualifies for small business rates relief.

Sunak also launched a “fundamental review” into the long-term future of business rates, to be concluded at the autumn Budget. The Government previously said it would launch a review into the rates system.

Rates bills are based on a complicated formula which involves analysis by Government inspectors into rental values of all business premises in England and Wales, raising around £40 billion a year for the Treasury.

Last week, organisations including the Association of Convenience Stores, British Chambers of Commerce, British Property Federation and Federation of Small Businesses all called on the Chancellor for a major overhaul of the current rates system.

It followed a separate letter signed by more than 50 retail bosses, including leaders at Marks & Spencer, Harvey Nichols and Ann Summers, urging for the current system to be replaced.

Alex Probyn, UK president of expert services at Altus Group, said: “Whilst the exemption for a year is excellent news for our small independent retail, leisure and hospitality businesses, delivering badly needed respite, sadly, they appear to overlook the plight of big business.

“Through a combination of qualifying criteria and EU State Aid rules, effectively, we are excluding the larger employers and the huge number of employees that rely upon them.”

Melanie Leech, Chief Executive, British Property Federation acknowledged that the coronavirus crisis meant Sunak had a tricky job today, but said he had, “missed a trick” on business rates.

“While all the short-term measures to manage the fallout from coronavirus  are welcome, the Chancellor has missed a trick. Our town and city centres, and businesses of all sizes, need more support today. It is not enough to just offer more relief to small businesses and ignore the UK’s bigger high street stores, who are some of the country’s largest employers,” she said.

“Downwards phasing, where businesses given a lower rates bill following an evaluation go through a staggered process of reducing their bill over a period of time, means businesses today are still paying rate liabilities related to their property valuations in 2010, while many retailers’ rents have fallen by about 30 per cent in this time. This process is unfair and should have been abolished – businesses should be paying a business rates bill that is based on current rental values.

“It is positive, however, that the Treasury’s business rates review is to begin imminently. We urgently need more frequent revaluations and the Government must move away from the outdated notion that business rates should raise the same amount of money every year regardless of the health of the economy,” Leech said.