Annual 5% cap on business rate increases proposed as part of ‘transitional relief’ package

It is consulting on a package of transitional relief worth £3.4 billion, of which almost £1bn is expected to go to businesses in London. However, “the majority” of businesses in England will be “unaffected or better off” as a result of the revaluation, through which business rates will be based on 2015 property values as of April 2017.

Business rates revaluations usually take place once every five years, although the revaluation which was due to take place in 2015 was postponed by the government following the financial crisis. Rates are currently based on 2008 property values. Local government minister Marcus Jones said that the changes would give “local firms” confidence that the rates they were paying were “accurate and fair”.

“We are committed to helping all businesses flourish and as we make the system fairer up and down the country, nearly three quarters of companies will see no change, or even a fall, in their bills – including 600,000 who from next April will have their bills cut altogether,” he said.

“But for the small minority of businesses that do face an increase, we’re putting in place £3.4bn of transitional relief to provide vital support as they adjust to these fair and impartial changes,” he said.

Those businesses whose rates bills will be reduced as a result of the changes will also have those reductions phased in over five years under the government’s transitional relief proposals.

Introduced in their current form in 1990, business rates are paid by occupiers of non-domestic properties such as shops, offices, warehouses and factories and are currently the third biggest cost for small businesses after rent and staff costs. The tax is based on a rateable value set by the Valuation Office Agency combined with a ‘multiplier’ set by the government and based on the size of the business. The government has adjusted this multiplier from 2017 with the effect that the revaluation will be revenue-neutral for the Treasury.

However, from 2020, local authorities are to be allowed to keep 100% of locally generated business rates, rather than transferring a share to central government for redistribution in the form of a grant as is the case at present. The government also intends to abolish the uniform business rates and give local authorities the power to cut rates as a way of attracting businesses to their areas.

The government also intends to introduce a new ‘check, challenge, appeal’ approach to business rates appeals from April 2017, in time for the new rates taking effect. However, the new system has been criticised by some in the industry for excessively limiting the ability of businesses to appeal ratings decisions.

Industry body the British Property Federation (BPF) said that the dramatic differences between the 2008 data and that of the revaluation “points to the pressing need for more frequent revaluations of business rates”.

“The fact that businesses are currently paying rates based on property values from eight years ago, when our economy looked very different, is ridiculous and it is not surprising that we are seeing some very significant swings in rateable values,” said chief executive Melanie Leech.

“We need more frequent revaluations to ensure that changes in the property market filter more gently but also more immediately into business rates liabilities and there would be fewer of the large changes in value that we have seen today. More frequent revaluations should also lead to fewer businesses making appeals, because their rateable value would more closely relate to prevailing market conditions,” she said.

The consultation on transitional relief closes on 26 October.