The Government has today provided a long-awaited update on its review of business rates.
The interim report sets out the responses to the Government’s call for Evidence in July 2020. The consensus, alongside the Treasury Committee’s report in October 2019, is that reform is necessary, but when the Government will seek to implement such reform is unlikely to be soon enough for many occupiers.
The Government will be making its final report in Autumn 2021, delayed from Spring 2021.
What is the current perspective on business rates?
There are two main criticisms of business rates:
- Business rates have disproportionately increased in comparison with inflation and other taxes, while not facilitating consideration for a business’ profitability; and
- Business rates disproportionately increase costs on business requiring a physical presence against online businesses.
The review is being undertaken in the context of wider public policy concern such as the future of the high street and the decarbonisation of the built environment, as well as the need for the Government to repay borrowing for coronavirus support schemes.
From a government perspective, business rates provide a good source of income at both a local and national scale. They are favoured for their reliability – their physical nature makes them very difficult to avoid. The Government also holds the belief, based on academic studies, that any reduction in business rates will lead to an increase in rents. Most respondents to the Government’s Call for Evidence did not agree with such studies on the basis of the shift in supply and demand for commercial space.
What changes have been considered?
One of the main discussions during the inquiry was the introduction of an online sales tax. The nature of the tax would be to levy a small charge on online sales to redress the imbalance between physical and online businesses. In the responses to the Government’s Call for Evidence, many respondents backed the move on the basis that it could contribute to a reduction in business rates. Some argued that an online sales tax should not merely be introduced to rescue the high street in circumstances where consumer behaviour is moving increasingly online.
Any fundamental change is likely to be a long-term ambition. Short-term change is likely to relate to the frequency of valuations and the rate of the charge. Any such reduction will however need to be recovered elsewhere in the system.
It will be interesting to see how drastic any change in the Autumn will be, and whether implementation will come soon enough.
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