Business Rates Consultation

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In amongst all the more pressing news of last week, including the introduction of 14-day self-quarantine for those returning from Spain was the launch of the Treasury Consultation on Business Rates in England.

The consultation isn’t the most engaging of reads. Whilst I doubt if any public and private sector based DMO’s will feel able to comment directly, the subject material is still of significance, not least because business rates are one of the most contentious business costs for those that pay them and they remain a constant concern, even for those that don’t currently pay by dint of whatever the latest relief or exemption is in forces.

Business rates are also one of the Government’s simplest and most effective tax system and a significant source of funding for local government services. The impact of any change on local government finance is outside the scope of this review. That doesn’t unfortunately make concerns about local authorities and their ability to fulfil a range of public services that are also critical to the visitor economy and to facilitate, support or directly provide DMO services within destination areas and towns any less pressing. Trying to saving local businesses by cutting business rate may be totally ineffective if also diminishes public services, quality of place and direct of indirectly provided destination management and destination marketing. I very much doubt non-statutory destination management, nor place making is that high up the Treasury agenda when considering business rates, the total tax take and the need to fund local government in general.

The paper has three major parts, in two major sections.  The first part and first section deal with the question of reliefs and the multiplier the figure used to calculate the actual amount paid based on the headline rateable value; currently 49.9 p for small businesses under £51k RV and 51.2p in the pound for those over it. Of 2m business in England, 1.8m fall below the £51k threshold.

Responses to this section are required by 18 September to allow for possible changes for next year.  This more than suggests that business rates, although potentially tweaked, will still be with us in 2021/22 and possible beyond.  The 2022 revaluation which should have been based on April 2020 rental values has been pushed back to 2023 based on April 2021 values. This announcement made in May, may well be unrelated to the review process. It may simply reflect Covid-19 realities or alternatively it could be prudent planning for a system that may or may not remain, changed or unchanged, with us for some years to come.

Section two requires responses by 31 October. The second part of the paper looks at all other aspects of the current system and suggests changes that might improve it, from minor tweaks to more radical solution, for example the inclusion of land valuations.  The third part looks at alternative taxes, largely to address the growing differentiation between bricks and mortar based business and online sales. The principle proposals are around some form of sales tax; however, it is also made clear that Treasury view a sales tax as running alongside, not replacing a revised or new business rates system. There is a useful annex A detailing all the current reliefs and exemptions.

Taking this altogether the new and hopefully fairer business tax system may not necessarily result in what most high street businesses want which is reduced cost but rather, it may just result in a different way of calculating them (with initially winners and losers).  Small business that are currently in receipt of 100% relief may conceivably see cost increase, if arbitrary thresholds for current reliefs are smoothed or removed?

I am highlighting the consultation to you, not because its recently released or necessarily because I think DMOs could or should respond to it but more by way of warning that any thought that business rates might be consigned to history are forlorn.  The best we can hope for is a fairer system that to start with will probably have fewer arbitrary reliefs and exemptions.  The term revenue neutral is mentioned only once in the documents and then only in reference to transitional relief.  In this specific case Treasury give temporary relief to those hit by higher bills after revaluation paid for by keeping back revenue from those who’s bills should have reduced considerable (hardly fair!). Keeping changes to the entire business rates system broadly revenue neutral has been a fundamental principle of this tax since its inception in 1990 (in part why there is a multiplier, total RV goes down, the multiplier goes up and the total take remains the same).   Unless Treasury abandon that principle, or unless significantly more new money can be levered in from non-contributing businesses via for example a parallel sales tax route, I can’t currently see much obvious financial relief, let alone soon,  for the beleaguered high street retail, and hospitality industries.

I can’t easily direct you to the most relevant sections of this consultation. If you are interested in business rates, you are going to have to read or scan the detail:



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