By Altus Group | March 1, 2021

Robert Hayton, U.K. President of Property Tax at the real estate adviser Altus Group, looks at the options open to the Chancellor, Rishi Sunak, ahead of the Budget in relation to the business rates holiday.

When the new tax year starts on 1st April in England, around 550,00 business premises will still be closed under national restrictive measures. It would simply be unthinkable to return those firms back to normal rates liabilities, they just wouldn’t be capable of bearing that burden right now.

Even with the roadmap out of restrictions, and the hope that brings, it is likely to be a slow and gradual process for trade to return. The Ministry of Housing, Communities and Local Government expect Council income from business rates in England to rise to £24.84 billion during 2021/22 up from £14.95 billion collected during the current financial year if the holiday isn’t extended at the Budget. The stakes are high.

Ending the holiday too early is one material pressure on company finances that risks affecting the recovery from the pandemic now the end is finally in sight.

There are 2 million properties liable for business rates in England. From shops to pubs to factories and offices, as well as public sector buildings, they’re all liable for rates.

700,000 of those premises don’t pay business rates anyway through the 100% small business rates relief scheme whilst the holiday for occupied retail, leisure and hospitality premises completely exempted a further 360,000 properties.

Whilst exempting half of all non-domestic properties from business rates isn’t sustainable in the long term, meaningful support must remain in place if we want to protect the long-term health and viability of our high streets and local communities.

It has been widely reported that the holiday will be extended at the Budget. That would be no rabbit out of the hat. It is a necessity and Councils have been told to delay sending out demands.

The only real questions for the Chancellor are around the actual length of the extension and whether such an extension will be targeted in order to strike the right balance with public finance affordability and delivering value for the taxpayer. 

Some parts of the retail sector, for example, thrived during the pandemic and the rates holiday was the icing on an already very sweet cake. 14 very large retailers, to their credit, have agreed to return around £2.2 billion in relief received to the Treasury. 

That said, other retailers who remained open throughout the pandemic, increasing turnover and profits, paying dividends, haven’t done the right thing by repaying a relief that, in hindsight, they simply didn’t need.

Last March the Chancellor didn’t have time to create a more nuanced support package. He does now. Targeting support to where it is most needed is the only realistic way forward to avoid repeating the mistakes of the past.

The final part of the equation is then the length of the extension. The Treasury have already said that the final report into its ‘fundamental review’ would be released later in the Autumn when there is more clarity on the long-term state of the economy and the public finances.

An initial 6-month extension would tie in within that strategy and allow the Chancellor time to gauge the strength of the recovery. It would also give the Chancellor the flexibility to react, if necessary, at the Autumn fiscal event to deliver further support tapering down the relief if needed. 

But with Scotland extending their own holiday under devolved powers for a further 12 months, that could be a tough sell politically. 

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