It is unclear whether the chancellor’s imminent shake-up of business rates will result in a fairer system, says Pinsent Mason’s Andrea McIlroy-Rose
The UK has the most expensive business rates in Europe and retailers bear a disproportionate burden of these. So naturally they will be concerned about how the chancellor’s recently announced biggest shake-up to the business rates system for more than a decade will affect them.
Rates make up around half of all taxes borne by retailers so any proposed changes to rates will have a significant impact on their businesses.
On October 5 George Osborne announced:
- The government will abolish the uniform business rate in England and Wales and allow local authorities to reduce rates to attract businesses to their area
- The distribution of rates will change, allowing local councils to keep 100% of the proceeds by 2020, an increase from the current level of 50%
- Areas with elected mayors will have greater powers, including the ability to increase business rates by up to 2p in the pound, so long as they win the support of local business
This announcement is seen as a move in the right direction, as it gives local councils flexibility and the ability to attract businesses to their areas. There is also a promise from the government to reduce the number of appeals and delays in settling business rates.
There is understandable cynicism about whether the changes are as comprehensive as they need to be
However, within the retail sector there is understandable cynicism about whether the changes are as comprehensive as they need to be. Retailers who own properties in several different areas could find it hard to set budgets if the multiplier is to vary in each region. There is also the possibility of rates distortion and uneven growth where faster-growing councils benefit from the reforms, while those growing at a slower rate might suffer significant disadvantages.
What retailers are seeking is a rating system that promotes fairness and predictability but with an underlying requirement that the reforms should actually be fiscally neutral the actual impact of these changes remain to be seen.
Scotland appears to be the frontrunner in addressing the challenge: deputy first minister John Swinney announced that from October 31 2015, local authorities will be able to cut rates to try and boost economic activity. They will be able to apply changes in particular geographical areas or to chosen business sectors. Local councils will be able to retain all the business rates they collect in a system similar to that proposed for England and Wales.
The changes coming into effect in Scotland will afford retail experts the opportunity to see if these are just political stunts to take the pressure for rates reform off the government and put the blame for high rates firmly on local councils, or if the changes will have the desired effect of stimulating growth and attracting new investment within the retail sector.
Andrea Mcllroy-Rose is head of retail property and real estate partner at Pinsent Masons