Companies face £22bn business rates hike

Companies face a £22billion tax bombshell that will hamper the recovery and could tip struggling businesses over the edge. 

Experts say the impact of a sudden increase in business rates will hit firms as they battle soaring costs and an uncertain future. 

The rise, based on additional payment calculations for the next five years, is a result of record high inflation which is expected to peak in the autumn. 

Business rates increases are pegged against September’s Consumer Prices Index, forecast to be as high as 11 per cent. 

The rise would be the highest for decades and the single biggest jump by value in one year – around £3billion extra in the 12 months from next April and increasing in subsequent years to make up the mammoth figure. 

Business rates are a tax on property which means it has traditionally been disproportionately borne by high street retail and leisure companies, many of which are already nervous about a slump in demand this winter as energy bills and food prices rocket. 

Retailers have long argued that the system is archaic. They point out that a tax on property means rapidly growing online firms do not share the burden. 

The calculations have been verified by business rates adviser Altus based on the sudden hike and then compound increases based on the Bank of England’s target inflation rate. 

Alex Veitch, Director of Policy & Public Affairs for the British Chambers of Commerce, said: ‘Business rates hammer firms with significant costs before they turn over a single pound, irrespective of their economic health or circumstances. Businesses require vital support now to enable them to think and plan for the long term.’ The Government has already made alterations to the business rates system – changing the benchmark for increases from the Retail Prices Index to the Consumer Prices Index, which traditionally rises at a slightly slower rate – and reduced revaluations from every five to every three years. 

It has also introduced relief for small firms and, more recently, those in sectors under most pressure from the pandemic, although much of that help will be scaled back by next year. 

Veitch said: ‘To support long-term investment and success, the Government must do more to reduce the cost pressures that are holding back business growth. 

‘While recent changes to the rates system – such as more frequent revaluations – will help, a significant amount of unfinished business still remains. We need to see a reform of the entire system that takes all types of businesses into account.’ 

Some firms in the hardest hit sectors may be helped by a revaluation of rates from April 1 next year. But the total tax take will still rise with inflation. 

The owners of high street businesses, including restaurants and shops, are feeling increasingly fraught about their prospects for the autumn. One retail chief executive said last night: ‘We’ve had a good few months coming out of Covid, but the reality is that demand might all fall off a cliff pretty quickly in September when the summer is over, people come back from holiday and belts start tightening. 

He added that if prices on basics such as food and energy bills continue to rise, then people would be forced to cut back on optional spending including fashion and eating out, which would have a ‘pretty ugly’ impact on high street businesses.

Robert Hayton, UK president at the real estate adviser Altus Group, said emergency measures to help firms with business rates during the pandemic were ‘a good start in reducing the overall rates burden’. 

But he added that the Government needed to stop its ‘ridiculous policy’ of raking in more taxes as a consequence of inflation and concentrate instead on creating genuine growth. This, he said, would in turn boost local tax revenues and help fund services.’ 

According to the Confederation of British Industry, which represents the nation’s biggest firms, the UK has the highest property tax on firms across the G7 as a proportion of GDP. 

This compares to a corporation tax rate which is the third lowest in the OECD and is currently set at 19 per cent. 

The Treasury is under pressure to cancel a rise in corporation tax to 25 per cent from April, that would net it £17billion a year by 2026. 

Tory leadership hopeful Liz Truss has promised to axe the corporation tax rise, as well as a National Insurance hike worth £12 billion – which she has branded a mistake – and a £4.2billion ‘green levy’ on energy bills.