Following a pre-Budget meeting of Conservative MPs yesterday Andrew Brigden who represents Leicester North West, said the Chancellor should consider offering an enhanced transitional scheme to soften the blow for smaller businesses, or consider providing some form of loan for those struggling to pay. He declined to state whether he would vote against the Budget on this issue.

Business rates were due to be assessed in 2015, but the valuation was postponed. The new rates will now come into effect from 1 April and have become mired in controversy, with the arguments focusing on two elements: how much rates will rise by, and the introduction of a new appeals process for businesses who feel their valuation is inaccurate.

In a bid to stave off a back bench revolt, Sajid Javid, the communities and local government secretary, and David Gauke, the Treasury chief secretary, wrote a letter to MPs claiming there had been ‘a relentless campaign of distortions and half-truths’ about the move.

Gauke has stated that ‘three-quarters of all businesses, right across the country, will see their rates either fall or stay the same’, and that 600,000 small businesses will no longer be subject to business rates. 

This is because the government has permanently doubled small business rate relief. Eligible properties with a rateable value of £12,000 and below will receive 100% relief. Eligible properties with a rateable value between £12,000 and £15,000 will also benefit from business rates relief, offering significant reductions on their business rates bills.

The Department for Communities and Local Government (DCLG) has put out a statement emphasising the government will not benefit financially from the revaluation as it is a revenue neutral process.

In addition, from April 2020 business rates will switch from being linked to the retail price index (RPI) to the consumer price index (CPI), which the DCLG says will save businesses around £370m in total from 2020-21.

The government is providing £3.6bn directly to businesses to help with the revaluation, including a transitional relief scheme which will support ratepayers by capping and phasing in any rise in bills over the five-year period.

According to the DCLG, rates bills across the northern regions are due to fall by 10% before inflation and transitional relief – a fall of £600m a year – while businesses in the Midlands will see their bills fall by an average 5% – a fall of £230m a year.

However, these figures have come under sustained attack, with Brigden saying businesses in his constituency face an 11% hike, and news that NHS hospitals and GP surgeries in England and Wales will see their business rates will rise by an average of a third by 2021, a £635m bill.

Since business rates are linked to property prices, the rises are expected to be particularly acute in London and the south east, with estimates that some retailers in the capital will face 400% increases over the next five years.

Annual rates increases have been capped at 42%, but this is significantly higher than the 12.5% cap during the last revaluation in 2008.

Appeals process

In addition there has been strong criticism of the government’s proposal for reform of the business rates appeal process. Going forward, the Valuation Tribunal for England (VTE) will only be able to order a change to the rateable value of a property if the existing valuation was ‘outside the bounds of reasonable professional judgement’. Currently the VTE can order a change where it sees fit.

Business groups have suggested this will mean that any appeal claim within a margin of error, which is expected to be 15%, will be automatically thrown out.

The British Retail Consortium (BRC), the CBI and a number of other industry bodies have submitted a letter to the joint committee on statutory instruments, challenging the intended new appeals process.

Helen Dickinson, BRC chief executive, said: ‘This would be unfair to ratepayers and create additional uncertainty for local government. Instead, a collaborative working relationship between the Valuation Office Agency and ratepayers, where information and evidence can be shared and appeals avoided, should be sought.’

Business taxation reform

The row about business rates has also ignited calls for more fundamental reforms of business taxation. Supermarket chain Sainsbury's is expected to see its rates bill rise to around £500m, up from £483m, while online retailer Amazon will have its business rates bill cut at most of its warehouses, according to analysts.

Mike Coupe, Sainsbury's CEO, called the current approach to business rates ‘archaic’, saying: ‘The way it currently stands, there is an advantage for those without bricks and mortar operations, so there's a strong case for a level playing field in business rates and taxation more generally.

‘Businesses like ours with lots of property and employees face a bigger burden than others.’

The Institute of Directors (IoD) has added its weight to the argument, with a statement that: ‘It is an anomaly in the system that online businesses can operate large warehouses and pay less in rates than businesses with small premises in the middle of town. In the short term, the IoD is calling for small businesses in properties worth up to £100,000 to be granted further reliefs from business rates.’

The IoD is also calling for a new tax commission to be set up to keep the tax system up to date with changes to the economy including the growth of self-employment and the so-called ‘platform economy’, saying there should be a broader study of the implications of changing business models on tax is required.

Stephen Martin, IoD director general, said: ‘In the short-term, the government must take action to relieve some of the pressure on the small businesses facing hikes in business rates, and encourage companies to bring forward productivity-boosting investment.

‘But we should also look to the future, launching a new tax commission to look at what the growth of self-employment and online business mean for the tax system. The goal must be a much more level playing-field, which treats both high-street and online businesses fairly, and adapts to the growth of the platform economy, which is leading to an increase in flexible work.’