Concerns over cap on business rate increases

Business groups have expressed disappointment over the government’s scheme for dampening the impact of the business rates increase set for next April.

In an effort to soften the effect of large rises in business rate bills, the Department for Communities and Local Government is to introduce an upward cap on increases that could be as high as 12.5 per cent.

The business community had been lobbying for a cap as low as 5 per cent.

The cap will apply to all except the smallest business premises in 2010/11, but could rise to 25 per cent by 2014/15, the last year of the scheme.

The latest reassessment of the rateable value of business properties in England, which occurs every five years, has been based on their market rental values as of 1 April 2008. The new rates come into effect in April 2010.

The government has said that the majority of business rates, up to 60 per cent, will fall as a result of the revaluation. Some businesses, however, will be faced with an increase in their bills.

To help those firms whose bills will rise the most, the government has been planning transitional arrangements aimed at distributing the tax hikes over a five-year period. Each year will see a cap that reduces the increase to more affordable sums.

Some £2 billion will go into the transitional relief scheme and will mean that, after inflation, the maximum increase next year for small properties will be 3.5 per cent, while for larger properties it will be around 11 per cent.

Barbara Follett, the Local Government Minister, said: “As a result of revaluation, a million business properties will see an overall reduction in their rate bills next year, with some of the largest decreases in sectors such as industry and manufacturing.

“While the majority of businesses will see benefits on their accounting sheets from revaluation, for the minority with increases we’re giving the go ahead for a £2 billion relief scheme to limit the impact on bills. This is on top of the wider support available to help ease business pressures including discounted rate bills for small businesses and deferring tax payments.”

But some business organisations felt that the measures do not go far enough to help firms with the largest tax increases.

The British Retail Consortium (BRC) argued that the government is right to cap increases in rate bills and to meet the cost of this by introducing smaller downward caps for those businesses whose bills will fall as a result of revaluation.

The BRC added, however, that the government should have made the scheme revenue-neutral across the five-year duration, rather than just within each year. This, the business group said, would allow lower upward caps, especially in the first two years of the scheme when economic conditions are expected to be the toughest.

Tom Ironside, the BRC’s director of business environment, said: “A scheme that regards a 12.5 per cent cap on increases in rates bills in 2010/11 as reasonable isn’t doing its job.

“Retailers should be cushioned from the worst effects of revaluation on their business rates bills, especially in the first two years of the eventual recovery if they are to continue to maintain and create jobs.”

The CBI added its voice to worries over the capping.

John Cridland, the CBI’s deputy director-general, commented: “Although business rates will fall overall, in some areas of the country they will rise sharply, which is worrying at this critical time for the economy.

“The government has announced a maximum of rise 12.5 per cent. Given the economic situation, a significant rise in business rates could make a critical difference to companies trying to survive the recession.”

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