12th September 2024 - James Burkitt

In Labour’s manifesto there was a promise to “replace the business rates system, with a new system that will level the playing field between the high street and online giants”. The question that has been on everyone’s mind recently, is what will happen to business rates?

We’ve explored a few of the Governments’ options below:-

Ditch the reliefs and apply a different multiplier to retail and industrial properties

The CBI recently published a report which suggests to “change the application of business rates multipliers to a banded (‘slice’) approach”.

Around 700,000 properties currently pay no business rates at all however will soon be required to engage with the business rates system through the new ‘Duty to Notify’ obligations. To spread the burden, it may be that smaller businesses that are currently in receipt of Small Business Rates Relief will be required to pay business rates on a low multiplier. For retail properties it is expected a lower multiplier may be applied compared to industrial/warehouse uses.

The CEO of Sainsburys recently called for a 20% cut to prevent shops from closing and thousands of retail jobs being lost. Whilst the retail sector has understandably been lobbying on business rates reform, retail properties can currently obtain a 75% deduction to their 2024/25 business rates bills due to Retail, Hospitality and Leisure Relief (which is capped at £110,000 per year per businesses) and Rateable Values of retail properties have mostly seen decreases compared to the industrial sector between the two rating revaluations.

If the Government do go ahead with a sliced approach to multipliers, it will be interesting to see what reliefs they keep and whether small businesses will be brought into paying business rates.

Replace Stamp Duty, Council Tax and Business Rates with a Land Value Tax

The concept behind a Land Value Tax (as put forward by the New Economics Foundation), is that the land value is derived from “their location rather than the quality of the development sitting on top of them”. Whilst it is widely accepted that business rates are currently too complex, one of its strengths is that it is underpinned by legislation and years of case law which provide clarity as to how a valuer should arrive at a Rateable Value. Business rates also historically have a very high collection rate of around 98% and therefore a new tax based on land values would need to provide the same clarity and efficiency in its collection. Whilst it may be unlikely a Land Value Tax will be introduced anytime soon; it would certainly hit the headlines as providing wholesale reform.  

Delay reforms to CCA

Whilst we are currently set for the new ‘Duty to Notify’ to be released in time for the 2026 Rating List, anyone who has been involved with a recent 2023 rating list appeal will appreciate that the current Check Challenge Appeal (CCA) system is struggling to efficiently manage most cases in a timely fashion with a large number of Challenges being deemed as ‘unlawful’ or ‘incomplete’ due to technicalities.

It is questionable whether the Valuation Office Agency or the 700,000 of ratepayers who currently pay no business rates at all are ready for a new system. The CBI propose that the “current timelines are unrealistic and will create an unmanageable administrative burden”, we tend to agree.

Conclusion

Whilst many advocate for business rates reform, what this means will be different for each business or organisation and it will be a challenge for the new government to fully consider the views of different stakeholders. With recent talk of a £22 billion ‘black hole’ set against a very efficient tax revenue base of around £30 billion pounds a year, it may be that we will be waiting a little while longer for significant business rates reform.