Sunak set to delay plans for business rates reform

The Telegraph ​reports​​ that 'wholesale reform' of the controversial levy have been 'thrown into the long grass' so ministers and officials can undertake further work.

Government sources told The Telegraph ​that the Chancellor is committed to reforming the system in England, but has not had enough time to consider the impact of a significant shake up due to the pandemic.

The Treasury is still expected to publish its review into business rates at the Budget on October 27, after it was delayed​​ beyond the earlier Budget in March this year.

Business rates reform has long been seen as crucial to the long-term viability of the hospitality sector.

Responding to the Government’s Business Rates Revaluations Consultation over the summer, UKHospitality and the British Institute of Innkeepers (BII) stressed the need for wide-ranging reform to redress the 'unjust and imbalanced' current system​​, and the need to move taxation away from property.

The Government’s consultation previously proposed that business rates revaluations take place every three years instead of five, which the trade bodies said they support, however, they added that this cannot come at the cost of extra reporting, restrictions on appeals and penalties.

Under the current system, they claim the hospitality sector overpays by 300% relative to its turnover, which equates to £2.4bn, and, following the pandemic, have warned that this will put further pressures on heavily indebted businesses as they begin to rebuild and repair balance sheets.

Meanwhile, UKHospitality is one of more than 40 trade associations spanning the UK economy to have issued a joint call today (14 October) for the Chancellor to cut business rates in the Budget.

According to The Telegraph​, the growing momentum of the campaign for business rate reform has sparked alarm in Whitehall that companies may be expecting a wholesale overhaul to be unveiled later this month.

It is thought there will not be any change announced to the valuations of properties during the Budget, with moves to slash business rates on green investments also unlikely.

Small-scale changes are being looked at, it is understood, but a Government source told The Telegraph​: “I think the expectations are quite high and the reality is we just haven’t had enough time to look at it. It’s obviously something that needs looking at. Rishi is keen to do a proper reform of the whole system.”

Robert Hayton, UK President at the real estate adviser Altus Group, says Rishi Sunak has an unenviable task ahead of him with expectations high particularly from within the retail sector, but stresses that 'doing nothing is contributing to the financial trauma or ruin of tens of thousands of businesses waiting for outstanding Challenges to rates liabilities to be resolved'.

"The Chancellor needs, at the very least, to set strict targets for the Valuation Office Agency to focus on clearing the backlog of cases to facilitate the return of years of business rates overpayments," he says.

"That’s not reform, that’s just doing their job.”

John Webber, head of business rates at property agency Colliers, warns that delayed action will be a further hit to businesses, cost jobs and do nothing to save the high street.

"It is frustrating that 18 months into a consultation which has already been delayed four times in the last year, that the Government is still not ready to respond to industry calls for proper reform," he says.

“Obviously we will need to wait to see what is in the detail in the Budget- but we would hope 'tinkering' would include a recognition that in current form business rates are too high and that the multiplier at current levels of 51p in the pound is unsustainable for business.

"A 50p plus tax is just too high. The Chancellor, at the very least, should commit to a reduction of the multiplier to around 30p when he stands up at the end of the month. That would provide a significant relief to businesses across all sectors, particularly those in retail and hospitality.”

Following an extended business rates holiday as a result of the pandemic, hospitality firms begun paying the levy again at the beginning of July, albeit at a reduced rate. However, this is only set to run until the end of the financial year in March 2022, at which point business will be required to pay rates again in full. 

Responding to The Telegraph​'s report on Twitter this morning (14 October), UKHospitality chief executive Kate Nicholls said: "Hospitality businesses are facing a cliff edge in April when business rate bills kick in in full at [their] highest level - based on property prices in 2015. If reform is delayed, [it's] vital this is addressed."