Government promises of “fiscal neutrality” are a red herring: Changes to business rates are going to hurt firms
Last week, Britain’s biggest high-street retailers publicly urged the government to reform its business rates regime ahead of next week’s Autumn Statement. Many find the current system complicated, unfair to small business and counterproductive to UK growth. Calls for reform have now reached fever-pitch.
The government has pledged that any reforms to the current business rates system will be limited by a need to be “fiscally neutral”. In other words, any changes to balance the scales for businesses won’t alter the overall income business rates generate for the Treasury.
Ministers are using this premise to moderate expectations for a radical rate relief for retailers, however their commitment to fiscal neutrality is a red herring. Recent court rulings and government proposals suggest business rates will actually generate increased revenues, not to mention becoming more difficult to navigate.
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One of the issues is The Enterprise Bill, which was published in September 2015 and proposes significant changes to the system of appeals against business rates assessments in England.
The first details of these changes have emerged in a consultation paper called “Check, Challenge, Appeal”. The intent to ease a congested system is welcome; the current appeal system is not working.
Unfortunately, though, further action is required, as in its proposed form the new system could actually discourage appeals, particularly from smaller businesses rather than focusing on ensuring bills are at the correct level.
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Another development causing uncertainty is a recent ruling from the Supreme Court on the practice of assessing neighbouring floors within multi-let office buildings.
While the subject was not actually before the court, comment from two of the Lords during the case brings this approach into question. If the government-run Valuation Office Agency (VOA) react and split assessments, we will see backdated rate demands. Central London could receive a retrospective bill of up to £1bn.
For retailers or property owners carrying out repairs or refurbishments, a decision from the Court Of Appeal raises further concern. Properties that would not have been liable for rates while unoccupied and undergoing works may now be hit with bills for the duration of a project.
Together, these developments will actually increase Treasury revenues, so any commitment to fiscal neutrality should be taken with a pinch of salt.
The government has a clear opportunity to fix a system that is not just counterproductive to growth and development in the retail sector, but damaging the UK’s attractiveness to international investors, hindering development and hampering business.
As the results of next year’s rate review come into focus, all eyes now turn to next week’s Autumn Statement, to determine whether this will be a landmark victory for UK retailers, or yet another missed opportunity.