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Chancellor Holds Out Business Rates Carrot

by Jo Shaer, on March 26, 2015

cash for business ratesEarlier this month, the Chancellor used his budget to promise a radical review of the business rates system, a 400-year-old burden that dates back to the Elizabethan Poor Law of 1572 and is becoming 'crippling' for many of the small firms that occupy half of the commercial properties on which business rates are paid.

Business rates are based on the rental value of the property a company uses but these are set using property values from 2008 when commercial property values were much higher. This puts them at a distinct disadvantage right from the start when they are competing with online retailers, like Amazon.

In 2013/14, business rates brought in £20.5bn of revenue from 1.8 million non-domestic properties. However, the latest data from accountants PwC revealed that the shop closures in our town centres trebled last year, with 987 businesses closing, compared with 371 in 2013.

George Osborne said: 'In my view, the current system of business rates has not kept pace with the needs of a modern economy and changes to our town centres, and needs far-reaching reform,' the Chancellor said.

The Government has already tried to help 300,000 small businesses like shops, cafes and pubs by increasing the business rates discount for retail premises with a rateable value of £50,000, doubling small business rate relief until 31 March 2016 and capping the rise in the business rates multiplier at 2%.

What are the new plans for Business Rates?

Pilot schemes will be run that allow local authorities to retain 100% of any additional growth in business rates above existing forecasts and be free to invest this extra yield in new pro-growth economic schemes and infrastructure projects.

They will look at whether business rates should be raised in line with retail prices index (RPI) or the consumer prices index (CPI) measure of inflation, which excludes housing costs and mortgage interest payments and if the smallest businesses should be excluded completely, since this would only reduce the Government's share by 6% but make a huge difference to these fledgeling concerns.

Cambridgeshire, Peterborough, Greater Manchester and Cheshire East have been told that they can collect and keep 100 percent of business rates paid by local shops and restaurants from April in a trial that could be rolled out across the country.

The FSB, The Politicians and the new plans

At the FSB conference last week, Ed Miliband and George Osborne were quick to curry favour with small business owners.

John Allan, the FSB National Chairman responded to the Chancellor's plans for the business rates reform by saying:

"The Chancellor rightly thanked small firms for their contribution to the UK’s economic recovery and we welcomed his commitment to backing small businesses if the Conservatives return to power.

"The Chancellor’s commitment to reforming business rates will be received well by small businesses up and down the country. Business rates cause so many problems for our members, often holding back their growth plans. For many firms, they are the biggest costs they face after rent and staff wages. A new system must be in place in 2017 and support measures must continue until we have fundamental reform."

And to Ed Miliband he said:

"We are pleased to see Ed Miliband agree that we need fundamental reform of business rates. This is such an important issue for the UK’s small businesses and it’s great to see political consensus from all the major parties that we will get root and branch reform in the next Parliament."

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