Conclusion
The forthcoming decisions made by the new labour government as to how they take forward business rates are extremely important.
A knee jerk reaction is not what business needs. They crave certainty and a commitment from the new government to address the fact that the tax rate is too high.
The journey commenced with the last government who halted the inexorable increase in business rates by freezing the UBR to offer some assistance because of the pandemic. They broke the trend last April, making the distinction for large business by increasing the supplement by 6.7% CPI inflation to create a standard multiplier. Notwithstanding, the underlying UBR at 49.9p has remained fixed for 5 years.
Now represents a key moment for Rachel Reeves and her 30th October budget. Be bold and finally decouple the UBR and associated supplements from inflation next April and going forwards. Then allow the 2026 rating revaluation to drive down the UBR to the level we forecast at sub 44p.
Allow the shorter revaluations to then determine the extent the tax can rise, and we predict that by 2029 we will have a base UBR at 40p.
The tax needs digitalising to meet modern standards and the relief system needs reconsidering to ensure it is pertinent to business and encourages investment. Commitments from government as to how they will invest not just to benefit government but also ratepayers is absolute necessary. However, this is not the nub of the problem.
Business needs a clear commitment from government to deliver a target tax rate of 40p as the primary goal over the next 5 years. This is an objective that is within their grasp. It will finally create stability in the tax base and ensure that business' benefit.
Following on from the Autumn Budget 2024, Avison Young conclude;
This was a budget which gave a clear indication as to the new government’s route of direction without providing any real detail. The key takes were their continued commitment to a business rates system and the help they proposed for the retail, hospitality and leisure (RHL) sectors through applying a big business levy (higher UBR) for properties assessed at RV £500,000+. We now go into another period of consultation through to March 2025, with any changes to neatly take affect from April 2026, the start of the new revaluation.
The RHL proposed lower UBR carefully disguises HM Treasury’s move to save £2 billion per annum in RHL relief through passing the cost onto big business premises assessed at over RV £500,000. Our initial calculations estimate this will add 4p to the big business UBR tax rate, creating an £8p UBR disparity with RHL sectors assessed below £500,000.
Although we remain keen that the RHL sectors receive assistance as the government looks to protect the High Street, we remain concerned that a lower the UBR will in no way present a cure all solution to a problem fundamentally driven by changes in retail shopping behaviour, which in many traditionally strong retail locations, may well prove irreversible. We continue to have real concerns as to where the big business tax rate is going, already the highest in the country. How much can business afford to pay without hitting growth and jobs. Also, how much more complex does the system need to become as we move to five separate UBR’s.
We still consider there is a very clear route of direction which the government can take to deliver for all business an affordable lower UBR tax rate by 2029 at 40p. We will continue to lobby government on this point, but our greatest fear is that despite a 4-month period of consultation, previous form suggests their minds have already been made up.