Chancellor to delay ‘fundamental’ review of business rates

By Joe Lutrario

- Last updated on GMT

Chancellor to delay ‘fundamental’ review of business rates

Related tags Business rates Business rate relief Chancellor Rishi Sunak Coronavirus

Rishi Sunak is to delay the publication of the Treasury’s ‘fundamental review’ of business rates until Autumn.

According to the Chancellor, postponing the report will allow him to make decisions when the economic uncertainty caused by the pandemic has receded.

In the meantime, Sunak is expected to use next month’s Budget to announce an extension of the year-long business rates holiday for retail, hospitality and leisure, which is currently due to expire on March 31. 

Such a move - alongside other relief measures - is generally seen as being essential to save businesses and jobs in the hospitality sector. 

Responding to news of the review's delay, UKHospitality chief executive Kate Nicholls said: “The business rates system as it relates to hospitality has been broken for some time. It is an antiquated system of tax that bears almost no relation to the realities of business in the 21st​ Century. It needs addressing, so a delay in the review is obviously a disappointment.

“If it must be delayed, then it is absolutely vital that the Government uses the extra time to ensure it gets this right. After the misery of last year, a properly functioning, equitable rates system is now more critical than ever.

"In the meantime, there is now no reason why the business rates holiday should not be extended for another year. Extend this support, along with the VAT cut, at the Budget, then deliver a whole new rates system that no longer unfairly penalises our sector.”

In the run up to the general election in 2019, the Government promised a fundamental review of business rates and sought views on how the system currently works, issues to be addressed and ideas for change. 

The review is likely to include an online sales tax that would level the playing field between high street retailers and online players.

The Conservative manifesto pledge also promised to permanently cut the overall rates burden but that pledge was made just months before the emergence of the global pandemic. Borrowing pushed the national debt to £2.1tn at the end of December, or about 99.4% GDP, the highest debt ratio since 1962.

In 1990/91, when business rates in their current form were first introduced, the standard rate of tax for business rates in England was 34.8p, a rate comparable to other tax rates at that time. UK Corporation tax was 34%.

Whilst Corporation tax today stands at 19%, in contrast, the standard rate of tax for business rates (multiplier) is 51.2p, a near 50% increase, resultant from compound inflation.

Business rates are devolved to Scotland, Wales and Northern Ireland.

“The freeze to the multiplier and a discerning targeted extension to the rates holiday from 1 April buys the Chancellor time to develop a coherent strategy to taxing the digital economy in the longer term,” says Robert Hayton, UK president of property tax at real estate adviser Altus Group. 

“Against that backdrop, and increased spending for support during the ongoing restrictions and the months ahead, it is unclear whether the Chancellor remains committed to or now has the financial headroom to reduce the overall rates burden.”

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