Treasury Targets Business Rates Reform to Boost Small Companies’ Expansion

Plans have been unveiled to overhaul business rates, including measures to eliminate ‘cliff edges’ for small firms, with the progress welcomed by UKHospitality, BRC, ACS, and CBI.

The UK government is examining changes to the current system of business rates – the tax levied on commercial properties – as part of a broader drive to reduce bureaucracy and stimulate economic growth.

An initial report from the Treasury indicates a focus on reforming small business rates relief rules, which are currently seen as a disincentive to expansion and investment.

Under the existing framework, companies opening a second property often lose access to all small business rates relief unless they meet specific, narrow criteria.

This review comes amid increasing pressure from businesses and industry groups for a comprehensive reform of the system.

High-street retail leaders, including those from John Lewis, reportedly met with Chancellor Rachel Reeves last week to advocate for a significant shake-up.

The calls for reform follow a recent increase in business rates bills for hospitality, retail, and leisure firms in April, when a 75 per cent discount on payments was reduced to 40 per cent.

Further Improvements Under Consideration 

The government said it will also consider other ways to improve business rates following the merger of the Valuation Office Agency with HMRC.

It said it is considering changing the way the tax is calculated to further minimise cliff edges and enhance improvement relief given to businesses that invest in properties.

Ms Reeves said: “Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission.

“Tax reforms such as tackling cliff edges in business rates and making reliefs fairer are vital to driving growth.

“We want to help small businesses expand to new premises and building an economy that works for, and rewards, working people.”

UKHospitality, BRC, ACS, and CBI Respond Positively

A number of UK retail and hospitality industry representatives have responded positively to the new report. 

Kate Nicholls, chair of UKHospitality, said: “For too long, the broken business rates system has unfairly punished hospitality businesses and I’m pleased that the government is taking action to reform it.

“These measures to remove punitive cliff edges and barriers to investment are positive and will help to rebalance the system, as will the government’s commitment to lower business rates bills for hospitality businesses.”

British Retail Consortium chief executive Helen Dickinson described the business rates system as “outdated, overly complex and economically damaging”, and she welcomed government ideas for reform.

She said: “But for retail businesses, the most pressing question is how the government’s plan for a permanent business rates reduction for retail, hospitality and leisure premises will be implemented.

“Currently, retailers account for 5 per cent of the economy yet pay over 20 per cent of the total business rates bill, which is why such reforms are desperately needed.

“Until we get clarity on these changes, which isn’t expected until the Budget, many local investments in jobs and stores are being held back.”

The Association of Convenience Stores (ACS) also welcomed the progress, having already called on the Chancellor earlier this week for urgent changes to business rates to help local shops invest in long-term sustainability.

ACS chief executive James Lowman said: “It’s encouraging to see the Chancellor talking about reform of the business rates system to encourage growth, aligning with many of the measures that we’ve asked for to support local shops. Addressing the cliff edges on small business rate relief would mark a positive step forward, but with retail and hospitality relief likely coming to an end next year, there is more to do to ensure that retailers are not unnecessarily hampered by excessive rates bills.

“We continue to urge the Chancellor to use the Budget to announce a full 20p reduction in the new permanent retail, hospitality and leisure multipliers, which will go a long way to providing businesses some level of certainty at a time when they’re staring down the barrel of increases as a result of the incoming rates revaluation.” 

CBI Chief Economist Louise Hellem welcomed the interim report as a "significant step forward in the long-awaited reform of the business rates system”.

“The government is right to prioritise tackling cliff-edges, which have long acted as a brake on investment and growth across the economy,” Hellem said. “We particularly welcome both the commitment to explore a slice-based system and options for improving investment incentives – such as enhancing improvement relief – as put forward by CBI members.

“It’s also encouraging to see the emphasis on improving rates administration, building on the merger of the Valuation Office Agency with HMRC, which could make the system more accessible and efficient for business.”

Read the Transforming Business Rates: Interim Report

Source: Independent