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Business Rates Delay Will Hamper U.K. Recovery, Trade Group Says

Posted on Feb. 23, 2021

The need for fundamental change to business rates is more pressing in light of COVID-19, but HM Treasury’s decision to postpone a government review will hamper any recovery, the British Chambers of Commerce said.

The government will publish the final report of the review in autumn 2021, when there is more economic certainty, Treasury announced on February 19. An interim report, with a summary of responses to consultation, will be published on March 23.

“Delay in reforming a broken system will hamper any recovery by exacerbating business cash flow concerns as part of the fixed cost base that firms can do little to push downward,” said Suren Thiru, head of economics at the British Chambers of Commerce. “The delay in the review underscores the need to urgently extend business rates relief for retail, hospitality, and leisure and provide rates relief to all firms whose ability to generate revenues are severely impaired by the pandemic.”

The government has provided a business rates holiday for eligible properties in the retail, hospitality, and leisure sectors, worth over £10 billion to ratepayers, Treasury said. The November 2020 spending review “confirmed that the business rates multiplier would be frozen in 2021-2022, saving businesses in England £575 million over the next five years,” it added.

“For the duration of the pandemic, the government will continue to do whatever it takes to protect jobs and livelihoods across the U.K.,” Prime Minister Boris Johnson said on February 22 as he announced a four-step roadmap for easing lockdown restrictions in England.

But the U.K. government’s 60-page paper titled "COVID-19 Response — Spring 2021" noted that it will not be possible to preserve every job or business. “So the government will continue to help people to find new jobs, acquire new skills, or start new businesses as we build back better from the pandemic,” it said.

The government said it was able to provide significant economic support because the United Kingdom entered the crisis with strong public finances. As Chancellor of the Exchequer Rishi Sunak "has set out previously, it is not sustainable to borrow at this current level over the medium term. This means the government has a responsibility, once the economy recovers, to return to a sustainable fiscal position,” it added. (Prior coverage.)

Business Rates Relief

The Scottish government had announced on February 16 that its 100 percent business rates relief will apply for the whole of the financial year 2021-2022 to properties in the retail, hospitality, leisure, and aviation sectors. The move would increase pressure on Sunak to follow suit in his March 3 budget, The Telegraph reported. It quoted Jerry Schurder, head of business rates at real estate adviser Gerald Eve, as saying that businesses closed because of public health restrictions “are on their knees and are desperate for ongoing help.”

The review of business rates in England was first announced in the March 2020 budget, and a final report was scheduled for autumn 2020. But in April 2020 Treasury rescheduled several consultations to allow interested parties affected by the pandemic more time to respond.

The government’s July 2020 call for evidence invited comments on the potential effects of an online sales tax as well as views on possible alternatives to business rates. “Given that an online sales tax would be unlikely to raise revenue sufficient to replace business rates, we expect that any such tax would exist alongside business rates,” Treasury said.

In recent weeks, executives at several retailers, including supermarket chain Tesco, have stressed a need for urgent reform. “Put simply, rates have become too heavy a burden on the [retail] sector,” Steve Rowe, chief executive of Marks & Spencer, wrote in the Financial Times on February 19.

Rowe noted that “some property-intensive retailers argue that an online sales tax would level the playing field with pure online retailers.” But he suggested that an online sales tax would have “too narrow a focus.” A case can be made for a modest increase in corporation tax to offset a cut in the business rates multiplier, he said, adding that the United Kingdom should “redouble efforts to find an international solution” to the tax challenges of the digital economy.

Reform of the outdated business rates regime “is vital, to curb cost pressures on firms and stimulate business investment,” Alpesh Paleja, lead economist at the Confederation of British Industry, said in a February 19 release.

New research indicates that “the burden placed on small firms by business rates is growing,” according to the Federation of Small Businesses, which called on the government to extend cash grants and business rates reliefs to “those within supply chains suffering from severe falls in revenue.” In a February 18 release, the federation suggested that business rates reliefs introduced at the start of the COVID-19 crisis should be extended to 2022.

The federation’s budget submission also called for a retention bonus for employers who bring staff back to work from furlough and for employers’ National Insurance contributions to be reduced before the coronavirus job retention scheme closes.

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