Budget falls short on delivering fundamental business rates reform

The long-awaited decisions on the Business Rates Review missed the mark on delivering fundamental reform. However, some positive measures were announced, and a series of further consultations promise to address key issues ahead of the 2023 revaluation.

Some wins, but many important areas remain unresolved

The announcements today included a few important wins on business rates, but the Budget has nonetheless failed to deliver the wholesale reform that we have been calling for. The long-awaited final report on the Business Rates Review delivered on some aspects of the promised reform, but many more important areas remain unresolved, with further consultations expected in the coming months.

The move to 3-yearly revaluations is a welcome step forward. Many aspects of the process remain undecided, and the additional technical consultation on the details is welcome as many of you have shown a keen interest to engage with the process. We also welcome the promise of a consultation on transitional relief, which leaves open the possibility of scrapping the downwards transition phase. Some of the concerns we have raised in last summer’s consultation, such as the removal of Material Change in Circumstances (MCC) appeal routes, or the introduction of fees for increased transparency, have been considered and a decision was made to drop these proposals.

Other concerns, such as the introduction of a 3-month challenge window, as well as the phased approach to transparency, were ignored. Nevertheless, we envisage opportunities to engage with the process over the coming year, with a further technical consultation a welcome opportunity to ensure that the process works for ratepayers, without creating a huge administrative burden.

Protecting firms from further increases in the lead-up to revaluations

The freezing of the business rates multiplier for 2022/23 protects bills from further increases with inflation in the lead-up to the revaluation, at a time when we expect inflation to peak at over 4%. This is a welcome measure. However, the emphasis must remain on ensuring that the overall burden of business rates is reduced following the revaluation, and this is something we will continue to call for.

The final report of the review indicates that a technical consultation will take place within the coming months on administrative changes to the multiplier, but the state of the public finances will remain a key consideration for government, and we will need to think creatively about ways in which wholesale reform can be delivered at the minimum cost. We will work with you in the coming months to consider the options and continue to engage with Treasury to test options.

Additional relief for retail, hospitality and leisure

The additional relief for retail, hospitality and leisure businesses, in the form of 50% discount from rates over the coming financial year, shows recognition of the challenges that the sectors face and the disproportionate impact of business rates on their activity. The £110,000 cash cap per business will likely limit the benefits to larger business, and the next revaluation could see their bills increase once again if government continue to adjust the multiplier with changes in the overall rateable value of the property stock.

It therefore remains important that more radical measures are considered to, firstly, prevent further increases in liabilities for these businesses, and secondly, to go further and enable reductions in the burden of rates which will deliver much-needed support to our struggling high-streets and support areas most reliant on these sectors.

An emphasis on tackling inefficiencies

Finally, government has also shown a clear intention to remove the inefficiencies that business rates present in relation to the broader tax system in incentivising a shift to net zero. They have recognised the barriers created by business rates to take forward investment plans which will help improve the energy efficiency of commercial property and reduce the carbon footprint of these properties.

Their move to exempt all plant & machinery related to on-site renewable energy generation and storage, such as rooftop solar panels and battery storage, as well as low-carbon heat networks and electric vehicle charging points, is a welcome one. We will be engaging with our members to hear about how this will benefit you and talk through practical considerations before we feed into the technical consultation on this measure.

The additional ‘improvement relief’ which applies for a period of 12 months to rates increases from investments made to retrofit existing property also addresses a CBI ask and is a welcome announcement. However, we maintain that this measure is only effective in incentivising new investment if it is applied alongside an overall reduction in rates.

Online Sales Tax

It was announced a consultation will be published shortly to explore the arguments for and against a UK-wide Online Sales Tax. This also keeps open the door to further Business Rates reform, with HM Treasury noting revenues raised could be used to reduce business rates for retailers in England and to increase the block grants for the devolved administrations.

We envisage the consultation will focus on gathering stakeholder’s views on the fundamental proposal of introducing an OST, alongside potentially seeking views on how an OST could be designed if it were to be introduced.

Business input into this consultation will be key. Wholesale reform of Business Rates has been long promised and the CBI considers failing to act on it in this Budget is a missed opportunity to reassess the balance of taxation across bricks and mortar, hybrid and online businesses in a manner that is consistent with economic growth. The CBI will be reaching out for member input on this consultation shortly.