Spending Review 2020 – Business Rates Update
The Spending Review signalled some good news for owners and occupiers of non-domestic properties in England insofar as business rates are concerned.
Although not specifically announced by the Chancellor during his speech to the House of Commons on Wednesday, HM Treasury confirmed a freeze to the business rates multiplier during 2021/22.
Whilst we have seen rises capped by Chancellors in the past, this was an unprecedented move although relatively easy to deliver with inflation substantially below its 2% target.
September’s headline rate of inflation of just 0.5% had signalled that gross business rates bills next year for 2021/22 would have increased by circa £160 million in England. The freeze for 2021/22 also translates into further savings in future years given the compound effect of inflationary rises with HM Treasury forecasting an overall saving of £575 million over the 5-year forecast period by the Office for Budget Responsibility.
Having made a compelling case ahead of the Spending Review to Rishi Sunak personally that there should be a permanent freeze, we are hopeful that will be one of the outcomes when the Government review reports in the Spring.
Encouraging and supporting investment and economic growth is a far better way for Councils to grow their tax revenues. The permanent removal of the annual CPI adjustment is a deliverable meaningful reform that can be funded by the growth in the tax base.
Other corporate taxes do not rise with inflation. Permanently removing annual inflationary rises make business rates more predictable and would be a fairer way to ease the burden across all property sizes and sectors of the economy.
The current business rates holiday this financial year worth £10.13 billion for 358,264 occupied retail, leisure and hospitality premises in England, as things stand, is set to end on 31st March next year.
The OBR have anticipated within their Economic and Fiscal Outlook that business rates receipts will rise by £12.8 billion next year (across the whole of the U.K.) through the end of the rates holiday saying it represents a sharp rise in the tax burden on the retail, leisure and hospitality sectors as they recover from the pandemic warning “this represents one material pressure on company finances that could affect the recovery.”
The Government have said that they are considering “options” for further COVID related support through the business rates system and will outline those plans in the New Year.
Unquestionably, the pandemic has had a profound effect upon property values with the impact of COVID already plainly obvious. We have been very clear ever since the first set of national restrictive measures that grounds exist to support substantial and prolonged reductions to rateable values through material change in circumstances appeals.
Whilst it will take time to establish what the full reductions should be, it was hugely encouraging to see the OBR saying, within their outlook, that there will be losses in rates revenue until the next revaluation in 2023 essentially signalling the acceptance at Government level of these appeals in principle.
Urgent interim adjustments must now be made to trigger much needed tax refunds to help those business premises without the current rates holiday whilst ensuring those businesses returning to normal bills next year, like retail and hospitality, pay a much-reduced amount.
We have made it clear to the Government that settlement of these appeals needs to be a priority and must take place ahead of the next financial year. We are heartened by the high-level discussions currently ongoing working to achieve that.
The further COVID support to be announced in the New Year should supplement settlement of these COVID appeal by way of additional targeted financial support ensuring it gets to where it is needed most avoiding the mistakes of the past.
It was also right that valid concerns were acknowledged by Government and additional funding allocated to the Valuation Office Agency given the invaluable work that they do and the pressure that they face. Through the Spending Review £22 million is being made available to modernise the VOA’s IT systems, enabling the agency to become more flexible, efficient and resilient.
A further £31 million to support the revaluation of business rates in 2023 is also being made available to the VOA. These extra funding streams come hot on the heels of the extra £11.5 million made available at the Spring Budget earlier this year. Having constantly banged the drum for more resources, this is hugely positive.
Robert Hayton, Head of Property Tax, Altus Group