The Chancellor Must use the Budget to Clarify his Business Rates Strategy

Posted by Colliers on 1st March 2021 -

The Chancellor has a golden opportunity to reassure businesses and clarify his business rates strategy in the forthcoming Budget on 3 March says John Webber, Head of Business Rates at Colliers.

But it’s essential he uses the system to look at the wider economic picture for the year ahead, not just the next three months for when we come out of lockdown.

Although the Chancellor has ruled out any immediate major response to the on-going consultation on business rates reform, now delayed until the Autumn, the business rates team at Colliers suggests that the Chancellor:

• Follows through on indications that he will extend the current 2020/2021 business rates holiday for the retail, hospitality, and leisure sectors due to end at the end of March. Colliers says it is important he makes this is at least for another six or even twelve months from April 2021; giving the sectors proper time to recover from the impact of the COVID-19 pandemic and national lockdowns. Current locked down retailers or hospitality businesses will be unlikely to be able to take back their business rates commitments quickly, particularly as “opening up” is going to be staggered. In Scotland a 12-month extension of the rates holiday has already been granted for these sectors.
   
• Offers this rates holiday only to companies in these sectors who have seen genuine hardship. Businesses should need to show a proof of decline in turnover or profit caused by the pandemic and lockdown to be eligible. That way neither the supermarkets nor the online retailers who have benefitted from the closure of other purely physical competitors would be eligible this time and would not apply unless they had undergone genuine hardship.
   
• Provides business rates relief for other sectors who have not had the advantages of the business rates holiday who can show genuine hardship. This would include the aviation industry, and also businesses in manufacturing (particularly those that supply retail/hospitality and leisure) and many offices businesses.

In the office sector most businesses have been prohibited from using their offices during lockdown and workers told to work from home. Since then many offices have remained empty or only became partly occupied. The financial implications have been dramatic for many as seen by the sheer number of companies appealing their rates bills via MCC (Material Change of Circumstance.) Colliers estimate this number is now around 350,000.

Colliers estimate that a blanket six months rates holiday for retail/hospitality/leisure would cost the government around £6 billion, but an application only system with widened usage to other sectors would be no more than £4billion or £5 billion.

• Give the VOA a deadline of 1 July 2021 of disposing of the 350,000 MCC business rates appeals that are snarled up in the system.
   
• Immediately reduce the business rates multiplier to £0.30 from current levels of £0.51 making business rates a more affordable tax across the board, so all rate payers can benefit.
   
• Commit to a 2023 Rating Revaluation, even if the VOA has to complete this in one year (as committed to in Scotland). The VOA should be properly resourced to carry out such a revaluation. Leaving the next revaluation to 2024 would be disastrous and essentially mean another seven-year list, with businesses paying rate bills based on rental levels of 2015 for another three years. This should be avoided at all cost.
   
• Clarifies Rules on State Aid. Now the UK has left the EU, it is essential that financial help to businesses is not hampered by EU State Aid restrictions. The European Commission’s “Temporary Framework” increased limits on State Aid to euro 3 million per business for those facing a declining turnover (at least 30% decline compared to the same period of 2019) due to the coronavirus outbreak. However, many businesses are unsure of where they stand on this, so the Chancellor must give greater clarity and make sure that in a post Brexit world the UK is not shackled by EU restrictions.
   
• Brings in a business rates arrears moratorium for those businesses, who because of the pandemic have been unable to pay their business rates bills. Colliers suggest this should be for at least six months allowing businesses a chance to sort out their finances. Many hard-pressed businesses have received enforcement orders from their billing authorities for failure to pay their rates bills. Colliers urges the Government to instruct Local Billing Authorities to show flexibility and support to business rather than stepping up the heavy-handed court summons.
   
• Consider introducing an on-line sales tax to reduce the discrepancies between what on-line retailers pay in business rates tax and the high street physical retailer. Colliers believe an online sales tax could work if the tax take is ring fenced for the finance of local government and goes towards reducing the tax take from business rates applied across the board. It should be used to support the reliefs above and a reduction in the UBR, thereby making taxation fairer for all parties.

John Webber, Head of Business Rates at Colliers concluded, “Whilst we have been disappointed that the Chancellor has delayed the business rate review until the Autumn, he does still have a golden opportunity next Wednesday to bring some relief to businesses across the country who are struggling as a result of the unprecedented circumstances we have seen in 2020/21. We urge that he does not ignore business rates and that he reassures businesses that they will not be faced with either untenable bills from the end of the month or court action.

Failure to do bring in significant reliefs to those companies that need it, may mean the bloodbath we are currently seeing in the retail and hospitality sectors could well spill across other sectors, leading to more closures and job losses across the board. Let’s hope it doesn’t come to that and the Chancellor shows that he listens to the pleas of businesses and provides them with the support they desperately need.”