Thousands of shops, pubs and restaurants are in line for £14 billion in relief aimed at countering next year’s rise in business rates, but the government stopped short of more fundamental reform of the tax.
The government was due to net an extra £3 billion a year in April when business rates — a levy on most commercial properties to fund local services — were expected to rise in line with inflation.
Business groups had urged the government not to let this happen, fearful that another jump might push companies into insolvency. Jeremy Hunt said that a revaluation of business rates would go ahead as planned next year but that he would “soften the blow” with £13.6 billion worth of tax cuts over the next five years.
“Nearly two thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit,” he said.
The package means that the total increase in business rates bills will be less than 1 per cent, compared with more than 20 per cent without intervention.
Much of the support will come from the freezing of the business rates multiplier, meaning that rates will no longer increase in line with the elevated rate of inflation in the spring. This measure alone is set to save businesses £9.3 billion over five years.
There was an extension of a rates discount for retail, leisure and hospitality businesses, worth £2.1 billion. Previously, companies whose rates had come down were gradually moved to their new levy over several years but this “downwards transition” has been scrapped.
Some businesses, especially those with warehouses where rents have risen sharply in recent years, face a large increase in their business rates bills next year but Hunt has capped how much those bills can increase, which will save firms £1.6 billion.
However, some bigger companies could still see their business rates increase by 30 per cent from April. Knight Frank, the property agent, thinks that this will be “particularly damaging to the logistics and the industrial sector”.
Business lobby groups broadly welcomed the relief but called on the government to go further.
“It remains the case that the current system is outdated and not fit for purpose,” Kate Nicholls, chief executive of UK Hospitality, said. “The government made a manifesto commitment of root and branch review and it’s essential that this is delivered as soon as possible.”
Helen Dickinson, chief executive of the British Retail Consortium, said that the chancellor’s measures were “the first step towards a more fundamental reform of the broken business rates system”.
Businesses, especially retailers, have long complained that business rates are now out of date and give online retailers an unfair advantage.
Shops have called for the introduction of an online sales tax to level the playing field but the chancellor has rejected the proposals. The government said it was concerned about the “complexity” of bringing in such a tax.
“The chancellor has missed a major opportunity by scrapping an online sales tax,” Scott Parsons, UK chief operating officer of Unibail-Rodamco-Westfield, the shopping centre landlord, said. “Physical retailers pay significantly more in taxes as well as being faced with rising operational costs, while online retailers continue to be let off the hook.”