Of course, business rates fund valuable local government services, but preventing further damage to the economy such as job losses or empty shops needs to be accounted for.
The Autumn Statement is a timely opportunity for the Chancellor to confirm the Government’s intentions on business rates which have long been unequally structured.
Will the Chancellor seize the opportunity?
If the answer is yes, we urge him to adopt two measures that could have a major impact on the industry and the wider levelling up agenda that the Government has recommitted to.
What do we expect to happen in 2023?
1. Rateable values
Our research suggests that the total value of all non-domestic property will increase by 8% following the 2023 Revaluation. To ensure the government can still obtain the same revenue from the tax, it means the multiplier to calculate the rates paid by businesses will fall by 8% to ensure the government can obtain the same revenue from the tax before any adjustment for inflation.
Rateable values are calculated using various methods, but for most sectors, it is primarily based on rental values. Unsurprisingly, rental values in the retail sector for instance, have declined in many parts of the country, spurred on by Covid-closures and a lurch towards online shopping, which should lead to a corresponding fall of rateable values.
Meanwhile rental values have increased significantly in the logistics sector, driven by demand to service online sales, leading to a large, anticipated increase in rateable values.
Location is another key factor impacting rateable values, with London assessments due to increase or hold up in line with its rental performance and wider economic recovery. Yet across the rest of England, rateable values are more likely to decline.
2. The multiplier
If total rateable value for all non-domestic property increases by 8%, then the current multiplier of just under 50p could be reduced for the Government to generate the same total revenue.
Over recent years, the Government has recognised the impact of excessive business rates, opting to ignore inflationary increases and freeze the multipliers since 2020.
However, with the September 2022 Consumer Price Index figure at 10.1%, there is a real risk the Government will seek to significantly increase the current multiplier as a way of ‘balancing the books’ and restoring some local government funding.
Our suggested measures would be as follows:
Measure 1 – The Treasury should ignore inflation when rebasing the multiplier following the 2023 Revaluation.
We urge the Government to ignore inflation once again. Allowing the multiplier to fall given the increase in total rateable value would continue to bring in almost £30 billion a year, which is a sizeable income generator.
This decision would help occupiers survive after a number of tough consecutive years. The money saved by businesses could be put towards hiring or retaining their workforce or covering higher energy bills. It may also encourage international organisations to enter the UK market, with business rates often impacting location strategies.
Measure 2 – The Treasury should abolish downwards transition.
Transition is mainly applicable in England and seeks to shield businesses from significant increases in rates payment following a revaluation, by implementing the increase in stages.
Meanwhile, those businesses whose rateable values have fallen do not immediately benefit as their lower payments are also phased in over a number or years, so that the impact of transition is revenue neutral.
The transition creates a divide, benefiting the companies that can actually better afford the higher rates, often in well-performing sectors and based in prime locations like Central London. Whereas businesses in areas that are struggling do not get the immediate benefits of lower rates. Ultimately this means successful ratepayers are being subsidised by struggling sectors who should benefit most from the 2023 Revaluation.
By introducing our suggested measures, the government would be providing much needed support to struggling occupiers whilst living up to its intentions to level up, providing fresh hope for the industry and allowing businesses to flourish once again.
Mike Flecknoe is the Head of Rating UK at Cushman & Wakefield
The new draft 2023 Rateable Values will be published by 31 December in England and Wales and 30 November in Scotland.
Business rates are devolved to the home nations which means any announcements by the Chancellor will apply to England only. In Scotland, the Government has confirmed that its budget will be published on 15 December, and the Welsh Government is due to publish its Outline and Draft Budgets on 13 December.