At the Conservative Party Conference yesterday the Chancellor announced a number of changes to the system of business rates in England.
While we don’t quibble with what the Chancellor has announced, giving local areas more responsibility on the growth front is the way to go, it does give rise to questions about how business friendly the system will be in the future.
There are three elements used to calculate the rates bill for a property. The rateable value of a property (the annual estimated rental value) is multiplied by the nationally set uniform business rate (UBR) or multiplier expressed in pence, with revaluations of site rateable values occurring every five years.
The changes announced by the Chancellor include:
- Local authorities will in future be able to reduce the multiplier in their local area with government still setting a national multiplier as a cap
- At present 50% of any growth in the value of business rates (because of an increase in property values or new buildings moving into the area) is kept by local government in the future this increases to 100%
- Mayoral combined authorities will in future be able to increase their business rates level to fund investments, subject to a referendum of businesses who would pay the increased amount
- Alternatively in some instances the Local Enterprise Partnership would be able to agree to the levy without the need for a business referendum
These changes give rise to a number of questions:
How will the multiplier be set in the future?
At present it is increased each year by inflation to maintain revenue in real terms. Will that still be the case in the future?
If so would the locally set multiplier also increase by inflation or will it no longer increase?
Will bills become more unstable?
One aspect of the existing system that manufacturers feel works well, is the stability of knowing what your bill will be.
If local authorities can now lower the multiplier, but then increase it the year after (up to the national multiplier) this gives rise to the prospect of, in theory, wildly fluctuating bills. Making business planning and investment for those with large business rates bills more difficult.
Is this an end to discretionary relief?
At the moment local authorities can offer discretionary relief to businesses that apply due to temporary shut downs for this such as renovation work.
Manufacturers have told us that following the introduction of the 50% business rates retention scheme, local authorities are increasingly likely to reject such relief applications as they have to fund 50% of the costs from their own budgets.
Now they will have to fund 100% will this make such applications increasingly unlikely to succeed?
Any changes in calculation?
For manufacturers the main change that is needed is in how business rates are calculated – this was not addressed yesterday.
Britain is in the minority when it comes to taxing equipment and machinery as part of its business property tax regime - a burden that weighs more heavily on investment intensive sectors such as manufacturing.
While the system doesn't dissuade renewal or replacement investment projects in general, there is evidence to suggest that for those with higher rateable values it is enough to put off capacity increasing investment, potentially pushing these overseas.
This is one aspect of the system that needs to change. The government should be taking every opportunity to anchor productive enhancing investment in the UK, not taxing it in a non-internationally competitive way.
Given the challenges within manufacturing at the moment, with the sector in technical recession – manufacturers will be looking to the Chancellor to fix this part of the system sooner rather than later before they have cause for cheer.