Thousands of shops, pubs and restaurants are on hold for £14 billion of relief aimed at curbing business rate rises next year, but the government has backed away from fundamental changes to the tax.
The government was due to deliver an extra £3bn a year in April when business rates – a levy on most commercial property to fund local services – were expected to rise in line with inflation.
Business groups had urged the government not to let this happen, fearing another jump could push companies into bankruptcy. Jeremy Hunt said the company rate review would go ahead as planned next year but would “soften the blow” with £13.6bn of tax cuts over the next five years.
“Nearly two-thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small shops will benefit,” he said.
The package means the overall increase in transaction fees will be less than 1 percent, compared to more than 20 percent without intervention.
Much of the support will come from freezing corporate interest rate multipliers, meaning interest rates will no longer rise in line with rising inflation in the spring. This measure alone is expected to save businesses £9.3 billion over five years.
Discounts for retail, leisure and hospitality businesses worth £2.1bn were extended. In the past, companies that had lowered rates were gradually moved to the new rate over several years, but this “downgrade” has been discontinued.
Some companies, particularly those with warehouses where rents have risen sharply in recent years, face large increases in business rates next year, but Hunt has limited how much those bills can rise, which will save businesses 1.6 billion pounds.
However, some larger companies could still see their conversion rates increase by 30 percent from April. Estate agent Knight Frank believes this will be “particularly damaging to the transport and industrial sectors”.
Business lobby groups generally welcomed the relief but urged the government to go further.
“It remains the case that the current system is outdated and not fit for purpose,” said Kate Nicholls, chief executive of UK Hospitality. “The government is committed to a root and branch policy review and it is essential that this is delivered as soon as possible.”
Helen Dickinson, chief executive of the UK Retail Group, said the chancellor’s measures were “the first step towards fundamental reform of the broken corporate tax system”.
Businesses, especially retailers, have long complained that transaction pricing is now outdated and gives online retailers an unfair advantage.
Shops have called for an online sales tax to level the playing field, but the chancellor has rejected the proposals. The government said it was concerned about the complexity of introducing such a tax.
“The chancellor has missed a big opportunity by scrapping online sales tax,” said Scott Parsons, chief operating officer of Unibail-Rodamco-Westfield, the mall’s landlord, in the UK. “Physical retailers are paying significantly more in taxes as well as facing rising operating costs, while online retailers continue to be let off the hook.”