The Treasury is facing a backlash from businesses amid a delay to an overhaul of the outdated business rates system that is blamed for mass shop closures.
Businesses had hoped that the government’s response to a “fundamental review” of business rates would be announced with the budget on October 27, but Rishi Sunak is now expected to announce only minor changes, a delay first reported by The Daily Telegraph.
Business rates are a property tax linked to the underlying value of commercial premises. Present rates are based on property values from 2015, which do not reflect a sharp decline in the value of high street shops and shopping centres after the rise of online shopping and the impact of Covid-19. The tax bears no relation to the trading performance of a shop and penalises bricks-and-mortar outlets over online retailers.
Business groups with nine million employees say that delaying reform will risk further shop closures and undermines the potential to invest in priorities such as cutting carbon emissions.
Rain Newton-Smith, the CBI’s chief economist, said: “With up to half of business investment potentially subject to business rates, it has literally become a tax on investment. If the government is serious about achieving its net-zero ambitions, kicking reforms further into the long grass cannot be the answer.”
The British Retail Consortium said that without reform, 80 per cent of bricks-and-mortar shops could close.
A Treasury spokeswoman said: “We’re currently conducting a review of business rates, which will conclude in the autumn.” She pointed to a £16 billion support package for retail, leisure and hospitality businesses during the pandemic. The scheme offered a 15-month waiver of business rates to eligible businesses and includes a further 66 per cent discount until March 2022.
She said that the government was “committed to supporting investment through the tax system”, citing the chancellor’s “super-deduction” tax break for plant and machinery.
Ian Fletcher, director of policy at the British Property Federation, said that there would be “significant disappointment” if the government did not “set out its stall” on business rates reform.
Business rates, after reliefs, raise about £25 billion in England for the Treasury each year. The government promised a review in 2019. In the same year, Sunak was involved in a Treasury committee inquiry into the system.