Can broken business rates be fixed?

Business rates have been a longstanding bugbear for firms across England and Wales. So, the Treasury's recent interim report on reforming the system has been welcomed by the UK's business groups. Here, we take a look at what the Treasury is proposing and how it has been received by the business community.

Cliff edges

The Treasury's report was recently published and it includes a vow from Chancellor Rachel Reeves to look at fixing the cliff edges in business rates that can discourage small business investment and growth.

Currently when a business opens a second property, they will lose access to all Small Business Rates Relief (SBRR) unless they meet specific conditions, holding businesses back from expanding.

That means that a local bakery would have to pay thousands of pounds more for opening a small shop in the next village.

The report confirms that the government will review how SBRR can support business growth, potentially lift growth and living standards in the future for those who work in these small businesses.

Vital to growth

This is one of the options being explored in the Treasury's business rates interim report.

Ms Reeves, says: 'Tax reforms such as tackling cliff-edges in business rates and making reliefs fairer are vital to driving growth. We want to help small businesses expand to new premises and building an economy that works for, and rewards working people.'

Lower multiplier

The British Chambers of Commerce (BCC) said it was encouraged by the report but urged the government to go further with the reforms.

The BCC wants to see a permanently lower multiplier of 45p for all businesses.

Legislation that passed this year gives the government the power to apply a discount to the multiplier of up to 20p in the pound. 

The business group also warned of unintended consequences if proposals for a higher multiplier for all properties with a rateable value over £500,000 became a reality. 

Fundamentally flawed

Jonny Haseldine, Head of Business Environment Policy at the BCC, says: 'The reality remains that these are tweaks around the edges of a business rates system that is still fundamentally flawed. 

'It causes an unnecessarily large burden on businesses regardless of their ability to pay and does not make allowances for the significant structural changes that have taken place in the UK economy over the last decade.

'In the longer term, we need a system that encourages growth and investment. It must be more responsive to the local and wider economic cycles and allow greater investment back into the local areas where it is paid.'

Rebalance the system

UKHospitality agreed that the proposals are 'positive' and will help to rebalance the system. It also 'reinforced the critical need' for the government to apply the maximum possible discount to the multiplier for all hospitality properties under £500,000 rateable value. 

Kate Nicholls, Chair of UKHospitality, says: 'For too long, the broken business rates system has unfairly punished hospitality businesses and I'm pleased that the government is taking action to reform it, following many years of campaigning from UKHospitality. 

'These measures to remove punitive cliff-edges and barriers to investment are positive and will help to rebalance the system, as will the government's commitment to lower business rates bills for hospitality businesses.' 

Serious ambition

The Institute of Directors (IoD) responded positively to the publication of the Business Rates Interim Report by the Treasury.

Liz Barclay, IoD Special Adviser for Small Business and Entrepreneurship, says: 'This is a welcome indication that the Chancellor is very serious in her ambition to help our vital small businesses. Cliff edges impede growth as business leaders hold back from expanding so as to avoid the additional costs involved. This should go some way to increasing confidence in small firms with growth ambitions and contribute to crucial job creation.'