Did Budget 2016 deliver on business rates for industry?

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The never ending uncertainty over the future structure of business rates rumbles on.

Budget 2016, in theory, drew to a close the structural review of business rates.

Key announcements included:

From April 2017

  • Properties with a rateable value of £12k or less will be exempt from paying business rates.
  • Properties between £12k and £15k will also secure relief on a sliding scale.
  • Properties between £15k and £51k will pay business rates based on the small business multiplier (typically about 1p in the pound lower).

From April 2020

  • CPI used instead of RPI to uprate the national multiplier.

At some point – consultation to follow

  • (Possibly 2020) Revaluations will change from 5 years (or 7 years as is the current case) to 3 years.
  • (Possibly April 2017) Greater Manchester and Liverpool will pilot the full devolution of business rates, namely – retention of revenues, ability to lower multiplier and an infrastructure supplementary levy in areas with a Mayor. Councils in London and the Mayor to retain more of their income.
  • Other areas to have full devolution package offered.

Alongside this, the current revaluation of properties in time for April 2017 has already started and the first draft of the new rating list will be published in September 2016.

This new list will then go live in April 2017 along with changes to the appeals system (to reduce the number of appeals) which are also being shaped up in time for the start of the new Rating List.

A mixed bag

For manufacturers Budget 2016 was a mixed bag.

Positives included the fact that there was no fundamental change to the structure of the system, which is something we had been calling for and the shift to CPI from RPI will be welcome (although the wait until 2020 seems a bit extreme).

Additionally, the changes announced around exemptions and new thresholds will benefit manufacturers at the lower property value end of the spectrum.

Despite all this there were some negatives.

Capital intensive manufacturers who currently have their investments penalised through the inclusion of plant and machinery in the calculation of business rates were left feeling disappointed.

Notably the Office for Budget Responsibility highlighted the significant boost to business investment that would have been brought about had plant and machinery been removed from the system.

In addition, the Government’s response to the Structural Review also suggests that local authorities argued against removing P&M as they were worried about the loss of revenue.

This appears short sighted if capital intensive manufacturers shift their production to other countries where there is no tax on their movable investments.The removal of plant and machinery would have also helped to make future revenues more stable for local authorities.

Change Change Change - change of fools?

While in theory Budget 2016 drew the Structural Review to a close - its conclusions for change to the system, notably aspects of devolution (our response to the Select Committee inquiry on this is available here) and reducing the revaluation period to 3 years from 5, has given rise to further questions, the prospect of unintended consequences and everyone's favourite - more consultations.

Two will take place this summer. The first, which has already been published, on increasing the frequency of property revaluations from 5 years to 3 years. The second on devolving full retention of business rates to local authorities is imminent.

Such tinkering with the system could give rise to the unintended consequences. For us stability still remains important and any trade off with that will need to be significant.

On the face of it therefore, the suggested changes to deliver more frequent revaluations (including having businesses self-assess their properties themselves) seem to present an administrative cost burden coupled with the potential for more unstable bills brought about by more frequent revaluations.

This is just the start, but we'll be watching this one closely to ensure changes don't end up making the UK an unattractive place for manufacturing from a tax simplicity point of view.


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