Business rates – A broken system

In his recent budget the Chancellor announced that the 100% Business Rates Relief for the retail and hospitality sector would be extended for a further three months, and a further 66% Relief would be available to qualifying occupiers for the remainder of the 2021/2022 rates year. These reliefs are to reflect the impact of the government-imposed restrictions resulting from the Covid-19 pandemic.

However, even prior to the pandemic, the government had introduced a scheme of relief for the retail sector, providing a scheme of discount for retail properties with a rateable value of less than £51,000 for the financial years 2019/2020 and 2020/2021. This scheme was introduced as a response to the perceived inequality the retail sector was suffering, where rates payments are based upon historic rental values from 2015, or earlier, at a time when high street rents are falling and high profile retail names are closing down in the face of competition from internet sales.

These reliefs, and other reliefs such as the Small Business Relief Scheme which gives 100% relief to occupiers of small properties, Rural Relief Scheme and Agricultural Reliefs do not address the fundamental problems with the Business Rate system. Rates payments are based upon historic rental values, which do not reflect current relative property values. The current rate in the pound is now 49.9 pence for small business occupiers and 51.2 pence for larger occupiers. Thus, this is a very significant property tax.

Whilst an overhaul of the Business Rates system has been suggested by the main political parties, no radical alternative has been put forward. Business rates remain a relatively cheap tax to administer, and one that is difficult to avoid. Whilst an overhaul is clearly desirable it is difficult to see any radical overhaul of the system within the foreseeable future. To make matters worse, the next Business Rates Revaluation has been put back to 2023, with assessments based on current rental levels. Many occupiers will recently have received Notices requiring them to provide rental information to the Valuation Office for this purpose. Without an intervention the high street is likely to suffer from high business rates for a few years to come.