News & Insights
On Wednesday, the Chancellor of the Exchequer confirmed a series of measures in his Autumn Budget that could seriously impact commercial tenants.
These included reforms to the way in which business rates were calculated and how businesses from certain sectors could achieve rates relief or specific exemptions depending on their activities.
In total, the measures would see an overall reduction in business rates of £7bn per annum.
However, Rishi Sunak defended the continuing need for rates, even describing it as “irresponsible” to scrap them, as they generate around £25bn for public finances each year.
At their party conference last month, Labour called for the scrapping of the current business rates system altogether, describing it as “outdated” and in need of replacement.
The Conservative Chancellor announced that, from 2023 onwards, the revaluations of rates will take place every three years, instead of their current interval of every five years. The last revaluation for business rates came into effect in England and Wales on 1st April 2017 and was based upon 2015 property values.
Critics of the current system argue that this method of calculation is flawed, as the dynamics of the commercial real estate market are constantly changing and property values in the market today may not be the same as they were six years ago.
Sunak’s more active approach to revaluation may therefore establish a fairer basis from which to calculate business rates. Additionally, the Chancellor also confirmed that next year’s planned increase in the multiplier used to calculate business rates will be scrapped.
Moreover, a 50% discount on business rates for companies in the retail, hospitality and leisure sectors will be implemented for 12 months to help their post-COVID recovery.
Sunak stated that “any eligible business can claim a discount on their bills of 50%, up to a maximum of £110,000”. It is estimated that 90% of businesses across these sectors should be able to benefit from the scheme.
There were also exemptions created for companies capitalising on green initiatives. Until 2035, any plant and machinery used onsite for renewable energy will be exempt from business rates altogether. Previously, sustainable property improvements such as these would also enhance the value of the property and thereby increase the rates payable.
This issue was further developed in the “business rates improvement relief” where, from 2023 onwards, improvements can be made to commercial premises, without an increase in the business rates bill, for a period of 12 months.
While this overhaul of the business rates system is certainly a step in the right direction, there are many who believe the Government’s Budget proposals do not go far enough to redress the balance in the bills paid by bricks and mortar retail compared to retailers operating online.
Without a complete redesign of the business rates system, such as the one called for by Labour, many expect to see more high street store closures in the coming months.