Broken business rates

The current system for taxing businesses is compromising the future of the high street, reports Keely Lockhart
Commercial awareness

The government is coming under increasing pressure from business owners to reform the soaring business rates that are crippling growth and preventing the rejuvenation of the high street. Many are calling for the Chancellor to use his upcoming Autumn Statement on 5 December to freeze business rates for two years, while others are proposing the government offers a business rates tax break for small startups.

Business rates, effectively a council tax for businesses, are set centrally and collected annually by local government from all commercial retail properties including shops, restaurants, pubs and offices. Rates are calculated using a combination of a property's "rateable value" (an average cost of rent paid by businesses in a particular area over a 12-month period), and the "business rates multiplier" (a figure linked to the September Retail Price Index).

In the last five years since the crash, business rates have soared by nearly 23 per cent and, according to the Office of Budget Responsibility, are expected to outstrip both council tax and fuel duties within the next two years. In addition, the shock September RPI of 3.2 per cent means that businesses will have to fork out an extra £900 million in tax from April 2014.

Long term outlook

In November the British Chambers of Commerce, which represents over 92,000 businesses in the UK, called on the government to freeze business rates for the next two years and proposed the government should conduct a comprehensive review of the business rates system by 2015.

Meanwhile, the British Retail Consortium, the only trade association that covers the whole of the retail industry, has taken matters into its own hands and has appointed accountancy firm EY to look into ways of reforming business rates tax system. The outcome will be recommendations for changes to business rates that the BRC hopes will contribute to UK economic growth, reinvigorate high streets and town centres across the country, and secure new retail jobs.

Here and now

However, Roger Wade, chief executive and founder of independent retail hub BOXPARK Shoreditch thinks that more needs to be done "here and now" to solve the problem of business rates. Roger is calling on the government to provide a three-month business rates tax break for small retailers. He has also launched a petition, which has drawn over 600 signatures, and has received support from both Labour and Conservative MPs, including Adrian Bailey, chairman of the Business, Innovation and Skills Committee and Brandon Lewis, parliamentary under-secretary of state at the Department for Communities and Local Government.

Speaking from experience, Roger told The Gateway: "Current rates are a major barrier on entry for small independent businesses who could otherwise help rejuvenate the high street. We even offer tenants three months' free rent, but a lot of them still can't afford to start trading because of the astronomic business rates."

Despite wanting to see some small changes to business rates right now, Roger still agrees that major reform needs to take place, but it can't happen overnight. "The business rates tax is based on an archaic system," he says. "But reforming the system is going to be more of a long-term ambition." One thing is immediately obvious: business rates reform is likely to become an important area of work for professional services firms

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