The government recently pledged to modernise the business rates system.
Promises to make the system “fairer and more accurate” by shortening revaluation cycles from three to five years, to improve valuation accuracy and to offer 12 months relief for improvements that increase rateable value have been widely embraced by the industry. However, the foundations of the crippling business rates system remain and still pose a significant risk to businesses, so need to be addressed.
While the 2023 revaluation is welcome news for the retail sector, in particular, the chosen comparison date of 1 April 2021 will bring many anomalies. The country was still well within the grasp of Covid, which reduced market activity. Revaluation provides scope for positive change, but taking into account the current landscape that businesses are operating in and the skewed results of the revaluation, the government will need to provide further support.
The recent consecutive blows to the economy have slashed consumer confidence, leaving the retail and hospitality sectors with shaky foundations. As a result, rateable values for these sectors could reduce by as much as 50% in 2023. This appears to be welcome relief. However, due to downward transition, this decrease in liability will only be felt gradually and businesses will be paying higher rates for some time. If the government hopes for businesses to recover from the pandemic, downward transition must be abolished and not supported by upward transition. Struggling businesses need to feel the effects of reduced rates immediately.
Another form of relief on the cards is extension relief. On the surface level, this is a great way to encourage improvement in the sector. However, to qualify for this relief, the building has to be occupied. No doubt a business would have difficulty attracting customers to a building site. Instead, this should be extended to refurbishments and new-builds, and to landlords as well as occupiers, to encourage new businesses to open and established businesses to update their buildings.
It also remains to be seen what the UBR will be in 2023, with many businesses calling for it to be reduced to 35p in the £1. However, where would the government make up the shortfall? Perhaps, an online sales tax will need to be investigated further.
Emerging from a turbulent economic period, the government’s priority must be to boost rather than hamper business recovery. Whether its promises for business rates will support this priority, however, is still uncertain.
Martin Davenport is partner at Hartnell Taylor Cook and former president of the Rating Surveyors’ Association