A business rates view on the Autumn Statement - between a Rock and a Hard Place?

The Chancellor’s Autumn Statement is set for 22nd November. In the build up to this, political commentators will speculate whether the Chancellor will announce tax cuts before the next election.

But those of us with an interest in business rates are more focused on two potential upcoming tax rises for businesses.

What might happen to the Multiplier?

Business rates are calculated by applying the multiplier to the Rateable Value of a property. The multiplier is used to ensure the tax collected from business rates remains the same in real terms each year. This is achieved by rebasing the multiplier at each revaluation and then increasing each year by September’s CPI.

This statutory mechanism has seen the multiplier for England increase from ￡0.348 in 1990 to ￡0.512 in 2020 – and subsequently remained unchanged since. The Government chose to override the statutory mechanism and freeze the multiplier, principally as a response to the Coronavirus pandemic.

In the post pandemic world, will the Government revert to the status quo, allowing the multiplier to increase by inflation next April?

September’s CPI measured 6.7%. Without intervention from the Chancellor, the standard multiplier will increase from ￡0.512 to ￡0.546 in April. For businesses in London, the multiplier would potentially increase further to ￡0.566p once the Crossrail supplement is added, or even ￡0.58 for those in the City of London.

Imposing a tax rate rise of such magnitude (on commercial property) is not a headline a government would seek before an election.

Retail & Hospitality Relief – Will the Relief Tap be Turned Off?

Amongst a relative plethora of available reliefs from business rates, the introduction of Retail & Hospitality Relief was intended to assist this industry during the Covid Pandemic.

Since 2019/20 the Government has provided the following relief to retailers:

? 2019/20 – 33% discount on Rateable Values below ￡51,000

? 2020/21 – 100% discount on all properties

? 2021/22 – 100% discount for 3 months, followed by 66% for the remainder of the year.

? 2022/23 – 50% discount, subject to a total cash cap of ￡110,000 per business

? 2023/24 – 75% discount, subject to a total cash cap of ￡110,000 per business

If ever you wanted a sign that the business rates system is not fit for purpose, the level of support given to the retail and hospitality sector in recent years provides the clearest indication.

Without further intervention by the Chancellor on 22nd November, the 75% relief currently provided to retailers will be removed. Whilst the larger national retailers will have been limited by the ￡110,000 cap, those benefitting from the full relief will effectively see their rates bills increase by 400% in April 2024, even before the potential increase in the multiplier.

Once a government starts providing support to a sector of the economy, it often proves difficult to turn off the relief tap. Even a reduction in the level of support provided will result in an above inflation increase in retailers’ tax liabilities.

The Chancellor’s Conundrum

Whilst an easy decision would be to freeze the multiplier and extend retail relief, the Chancellor needs to balance this against the needs of local authorities.

Business rates are collected by local authorities and used, together with council tax and the Government Grant, to fund essential services (local transport, education and housing). The freezing of the multiplier since 2020 has seen local authority funding fail to keep pace with inflation, at a time when inflation has caused the cost of delivering services to increase.

Research by the Institute for Government shows that local authority ‘spending power’ fell by 17.5% between 2009/10 and 2019/20. While the Government increased grants during the pandemic; the Government Grant to local authorities has still fallen 21% in real terms between 2009/10 and 2021/22.

Accordingly, the decisions the Chancellor makes on 22nd November will continue to have an impact on local authority funding for the next financial year and beyond.

Our Predictions

When stuck between such a rock and a hard place, a compromise is often the best solution.

Whilst it is impossible to predict what line the Chancellor will take, a more measured approach seems the likely way forward. For example, a balance might be realisable by increasing the multiplier by 2-3% and by easing retailers slowly off the relief support, reducing it from 75% to 50%, and then 25% the following year.

Would such measures be fully supported by both local authorities and ratepayers? No. However, these measures would allow some balance to be drawn and government could claim to have continued to support businesses while facilitating an increase to local authority funding. Such a measured approach might be sufficient to avoid negative headlines.

As a final word, the alternative would be to increase council tax, which would be less palatable to all voters ahead of an election.

For further advice, please do get in touch:

Simon Berkley Matthew Fanning

[email protected]