Leading retailers have urged the UK government to pass on an expected reduction in business rates immediately, with one property consultancy arguing that phasing it in gradually could cost the industry £1bn.
The UK’s stock of commercial real estate is being revalued for the first time since 2017 and retailers, who pay a quarter of all business rates, expect substantial reductions in one of their biggest outgoings.
As part of each revaluation, the government consults on the mechanics of transitional relief, which smooths the effect of rising valuations on business rates but funds that by limiting the benefit of falls. The current consultation process ends on July 25.
Business rates are a tax paid by the occupiers of commercial property based on the premises’ rental value. In most regions shop rental values have fallen sharply in recent years, and the latest revaluation was delayed in order to capture the full impact of the Covid-19 pandemic.
In the five years since the last revaluation, transitional relief of £633mn was given to English retailers facing increases in business rates. But that was more than cancelled out by the £1.28bn withheld from those whose liabilities fell.
Transitional relief does not apply in Scotland or Wales, where business rates are an issue for the devolved governments. A slightly different system applies to Northern Ireland.
The British Retail Consortium lobby group cited the example of a supermarket in Cornwall, where the rateable value fell 23 per cent in the 2017 revaluation. Without transitional relief, the supermarket would have paid £62,000 in business rates for the 2017/18 tax year, but ended up paying £82,000.
“Transitional relief means thousands of retailers overpay their business rates, worst affecting those shops in ‘levelling-up’ regions where property value has fallen the fastest,” said Tom Ironside, BRC director of business and regulation.
The BRC said it planned to call on chancellor Nadhim Zahawi to abolish the downwards phasing of business rates ahead of the 2023 revaluation, with Ironside adding that this would be “the single biggest immediate change any new prime minister could make to help struggling high streets”.
None of the remaining Conservative leadership candidates has pledged to act specifically on business rates, preferring to focus on corporation tax, VAT and national insurance.
Jerry Schurder, head of business rates at property consultancy Gerald Eve, estimated that if the 2017 relief regime were retained, retailers could lose out on £1bn over the three-year period until the next revaluation because the upwards relief granted would be very limited but the downwards relief withheld would be substantial.
Schurder added that the draft assessment of rateable values would normally be available before any consultation and that the debate over the design of reliefs was “taking place in something of a vacuum”.
The Department for Levelling Up, Housing and Communities said it had introduced temporary reliefs for retailers during the Covid-19 pandemic and frozen business rates for this year at last year’s level.
“We continue to support businesses with tax incentives . . . as well as investing in skills, innovation and infrastructure to boost growth,” it added.