Our Business Rates 'wish list' for Labour’s first Budget...

With just 12 days to go, there has, somewhat surprisingly, been no information from Labour since they took office regarding their intent to “replace the business rates system, so we can raise the same revenue but in a fairer way” (their manifesto pledge).

Apart from it sounding like their intention may be a battle of semantics, we, as part of the Rating industry, thought it might be interesting to put forward our own wish list for improving the current business rates system. Some are more fanciful than others for the sake of debate, but do let us know what you think in the comments below:

1. Pledge to freeze the basic UBR (aka multiplier) at the same level for the duration of a Rating list.

This will ensure small businesses have certainty on their rates liability, which will aid with financial planning.

2. Maintain upward only transition.

A welcomed measure by Jeremy Hunt at the last budget was to remove downward transition, which we hope will stay. Continuing to phase in increases in rates liability (after large Rateble Value (‘RV’) increases between Rating Lists) will continue to reduce shock and the burden on cash flows.

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3. Allow local authorities to set their own multiplier for properties that have a RV which incurs business rates supplements (ie, currently RVs of over ￡51,000).

We suggest that the basic multiplier would remain constant, but each local authority then has the flexibility to amend the supplements for eligible properties. This would increase regional competition and boost local economies in more deprived areas by making it more attractive to move to a new location. This in turn would increase redevelopment of existing stock and encourage more development and innovation, allowing for local economic, and national growth.

4. Reduce the set levy.

The Treasury currently receives about ￡30bn per annum, but if this were reduced to, say, ￡20bn, then this would immediately reduce the multiplier. You could make up the short fall by enacting a viable Online Sales Tax on online retailers – maybe a percentage of their published/declared revenue or percentage of the cost of each parcel issued to a UK address? Having a basic multiplier starting in the low 30p in the pound compared to nearly 50p would be a huge boost for bricks and mortar businesses.

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5. Review the empty rate relief parameters – a return to pre-2008 measures?

Landlords should not be penalised for having empty properties – full rates payable after 3 months statutory relief (6 months for industrial property) is barely enough time for a landlord to tender a refit or refurbishment let alone complete the work, particularly if there are insufficient grounds to delete the property from the Rating List.

Returning to a pre-2008 position where a 100% relief period is followed by a reduced relief period at, say, 50% rates (or less) is still an incentive not to leave stock empty – this provides carrot?and?stick, rather than just stick.

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6. U-turn on Public School VAT & removal of charitable rates relief.

While removing charitable relief for public schools would realise an extra ￡250m nationally per annum, it is, in comparison, just a drop in the ocean considering the billions that have not been collected due to four years of Retail Hospitality and Leisure relief since covid.

It’s highly questionable whether the money raised from losing Charitable Relief will improve the state school system. It may also force public schools to merge or close, further increasing the number of children in an over-stretched and under-resourced state education sector. The PR gain by this Labour initiative is minimal – it just seems vindictive rather than productive – and there are easier ways to increase rates revenue.

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7. Green Incentives.

When it comes to green incentives, the improvement relief is a start - but why not offer significant reductions in annual rates for initiatives like rainwater harvesting, solar panels, and improved insulation… to push landlords and asset managers to improve existing stock?

Initial benefit may go to the tenant rather than the landlord, but it could push for better standards for both existing stock and new developments, potentially opening up for increases in rent and reductions in service charges, boosting capital values of properties.

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8.?Remove Small Business Rates Relief and other discretionary reliefs.

Potentially a controversial point (and one that somewhat contradicts ‘green incentives’), but the business rates system is littered with reliefs that reduce the aggregate rates revenue for the Treasury, thereby forcing up the basic multiplier and supplements. By removing such reliefs, it would immediately increase the annual take and reduce the UBR to a fair starting position for all rate payers, including those on the high street.

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Conclusion

While it remains to be seen whether Labour's approach to business rates reform will bring about meaningful change, our wish list presents a range of forward-thinking measures that could both support the Treasury’s revenue goals and create a more equitable, sustainable, and thriving commercial environment.

What is apparent is that The Treasury likes non-domestic rates: it is a simple tax to calculate, collect and enforce and provides a steady revenue stream in an often volatile economic outlook. It is also fairly vote neutral, unlike Council Tax. So it seems that the real issue is the high multiplier, not the business rates system per se.

By striking a balance between incentivising development, supporting local economies, and implementing fair and transparent policies, the business rates system could become a true enabler of growth rather than a barrier.

What do you think? Please let us know in the comments below.

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