Sinead Moore 28 Feb 2017 03:04pm

Business rates hike could hinder investment and productivity across UK

Business and lobby groups have warned that business rate hikes pose a significant threat to small businesses, while sector leaders have stressed that the upcoming revaluation will hit businesses across the country, not just in London

Research from the Federation of Small Businesses (FSB) warned that almost one-fifth of small businesses would consider closing down or selling their business as a result of increasing business rates.

According to the survey, 36% of small businesses expect to see their rates increase from April when revaluation of commercial properties comes into effect, with 44% expecting their bills to rise by more than £1,000 a year.

Of the businesses facing a rise in rates, more than half expect profits to fall and 38% are set to increase prices.

As a result, 55% plan to reduce, postpone or cancel investment in their business.

The FSB warned this would hit UK productivity and growth.

Mike Cherry, FSB national chairman said, “The business rates system is an unfair, regressive tax which hits small firms before they’ve had the chance to make their first £1 in turnover, let alone profit.

He added, “Profitability across the UK small business community is already falling. The costs of doing business for small firms are now at their highest levels since early 2014. The last thing we need is a business rates burden so heavy that it threatens the future growth prospects of our entrepreneurs.”

Meanwhile Labour warned business rates are a “ticking time bomb” for small businesses with shadow business secretary, Rebecca Long-Bailey calling on the government to provide “immediate emergency relief to stop thousands of businesses going under”.

Speaking at an event hosted by the TaxPayers’ Alliance, Alan Hawkins, CEO of the British Independent Retailers Association, argued that businesses rates hit high street “bricks and mortar retailers” while favouring large online retailers.

Long-Bailey added, “It cannot be right for smaller, town centre retailers to be facing massive hikes while the Amazons and ASOS’s of this world have their business rates cut. Given our long-standing productivity problem, it is madness that we tax businesses’ plant and machinery.”

Ian Cass, managing director of the Forum of Private Business added that independent retailers “help revitalise and improve areas across the UK, only to get stung with increasing business rates”.

Cass stressed, “The government needs to have a grown-up conversation and decide what they want the high street to look like”.

According to Hawkins, “The answer to the rate problem is quite simple.

“If it were an allowance of £12,000 then the smallest would pay nothing, those on £24,000 would only pay on the last £12,000 and so on. The average shop on £24,000 would be happy as their rates would halve, the biggest say on £300,000 would not get much reduction as the £12,000 would be a small percentage of the whole.

“Quick help to the independents on the high street,” Hawkins said.

Following research by CVS last week which revealed that rising business rates resulted in the closure of four pubs a day across England and Wales over the last six years, Kate Nicholls, CEO of the Association of Licensed Multiple Retailers warned that pubs, bars and restaurants are already bearing a disproportionate share of the overall business rates take.

Speaking at the TaxPayers’ Alliance event, Nicholls added that it is the only sector facing an increase in rateable values across the country - not just in London – with double-digit increases expected in all but three regions.

With the pub, bar and restaurant sector facing a £500m additional bill, Nicholls said this will translate to an 18p increase per pint in pubs, while supermarkets will only face a 2p increase per pint.

Sean Hughes, landlord of The Boot, a pub in St Albans, added that increasing business rates, and the knock-on effect of increasing prices mean less and less people are going to the pub.

He said The Boot would need to sell 22,000 more pints a year to absorb the increase in business rates.

Nicholls warned that pubs, bars and restaurants “face a cliff edge” and called for immediate sector-specific relief as well as a phasing in of bills and a full right to appeal for businesses.

Philip Hammond has indicated that he may be prepared to take measures to help those worst affected by the hikes to compensate for the changes some business may face but has not specified what form that may take.

Nicholls stressed that the system is “no longer fit for purpose” and needs “genuine root and branch reform”.

“Business rates don’t work and they haven’t for ages,” Cass added.

Cherry added that the new appeals system will prevent small businesses with genuine concerns about their rateable values from being able to seek justice and redress. We are concerned that many could turn to cowboy ratings agencies already bombarding business owners with letters promising the earth.

Helen Dickinson OBE, chief executive of the British Retail Consortium said, “The plans for the new appeals process would mean that a business rates valuation determined to be inaccurate by the independent Valuation Tribunal for England, would only be corrected if it is deemed ‘outside the bounds of reasonable professional judgement’.

“This would be unfair to ratepayers and create additional uncertainty for local government. Instead, a collaborative working relationship between the Valuation Office Agency and ratepayers, where information and evidence can be shared and appeals avoided, should be sought,” Dickinson said.

Labour’s five point plan to help business survive the revaluation and develop a system of business taxation suitable for the 21st century involves setting up an emergency transitional relief fund for businesses facing “cliff edge” increases in their rates, and revising the appeals process to ensure businesses get a swift and fair hearing.

Labour also proposes bringing forward CPI indexation so that businesses aren’t paying more because of how inflation is measured as well as excluding new investment in plant and machinery from future business rates valuation and introducing more regular valuations in law to stop businesses facing periodic, unmanageable hikes.

It also called for “fundamental reform of the business rates system to ease the burden on traditional high streets and town centres in the age of online shopping; support the traditional fabric of our communities, including community pubs and incentivising free cash machines; and create a fairer system of business taxation”.

The TaxPayers’ Alliance said, longer transitional arrangements; decreased transitional caps; increased reliefs; and reduced multiplier rates are needed to reform business rates in the short term while a move towards an annual, automated process of revaluation which avoids cliff edges will be essential to long term reform.

“The seven year gap between this year’s revaluation and the last has stored-up all kinds of problems for our business community. The solution is for the chancellor to use his Spring Budget to announce a cross-party commission to propose measures for a replacement business tax system linked fairly to the ability to pay," Cherry said.

Andrew Silvester, head of campaigns and deputy director of policy at the Institute of Directors said, “It’s hugely important that politicians on all sides look for constructive ways to reform business rates. This is a 20th century system and in a 21st century economy it looks painfully out of date.”