Autumn budget “welcome from a business rates perspective”

All eyes in the real estate sector were on the autumn budget this November, particularly when it came to proposed changes in business rates. JLL’s Tim Beattie has been upbeat in his assessment of the new regulations.

“Jeremy Hunt has proved to be the Chancellor that finally listened” says JLL’s Head of UK Rating. “This is a very welcome budget from a Business Rate perspective, particularly when set against the current economic backdrop”.

We asked Beattie to talk us through some of the most noteworthy changes and what they will mean for the sector.

What the government has said: From April next year, business rate bills in England will be updated to reflect changes in property values since the last revaluation in 2017. £13.6 billion in targeted support is being provided over the next five years to support businesses through this transition, protect them from some of the impacts of inflation and support the high street generally. English local authorities are also being compensated for any loss of income from these measures and will also receive burdens funding for admin and IT costs.

Tim Beattie: This news will be particularly welcome to businesses – especially those in the retail sector - that had already faced a two-year extension to the previous revaluation period and were expecting their rates to fall. There had been speculation the revaluation could be postponed again, so the announcement it will proceed is great news. Why? Because regular revaluations are required to keep tax liabilities in line with market rents, which are broadly the measure against which business rates are charged. Given the tax-raising thrust of the budget, the extent of the £13.6 billion in support being provided is particularly welcome.

What the government has said: Business rate multipliers are being frozen for 2023-24 at 49.9 pence and 51.2 pence – an effective tax cut of £9.3 billion over the next five years. This measure supports large and small ratepayers alike and amounts to a 6% reduction in bills before the application of any additional reliefs.

Tim Beattie: Again, this is very welcome news. There were fears that the full CPI uplift of 10.1% could have been applied, which would have seen an unsustainable multiplier approaching 60p in the pound being introduced. Instead, the increase in the total Rateable Value base between the 2017 and 2023 Rating Lists has given the Chancellor room for manoeuvre – all things being equal, he’s actually collecting four percent more in tax by freezing the multiplier than he would otherwise have done. A true “freeze” in the amount collected would have reduced the multiplier from 49.9 to 48 pence, but the increase in the additional rateable value base has allowed him to both freeze the multiplier and collect a similar increase to that being proposed for Council Tax.

What the government has said: Upwards Transitional Relief is being provided to support properties affected by bill increases resulting from the 2023 revaluation. These “upwards caps” will be 5, 15 and 30 percent respectively in the first year for small, medium, and large properties. The caps will be applied before any other reliefs or supplements. This £1.6 billion support package is being funded by the Exchequer rather than by limiting bill decreases elsewhere – the method used in previous revaluations.

Meanwhile, the 300,000 properties seeing falls in their rateable values will enjoy the full benefit of those reductions from April 2023. The scheme is expected to support approximately 700,000 ratepayers over the next three years.

Tim Beattie: This is perhaps the most radical and unexpected announcement made by the Chancellor, although British business and the rating industry have both been calling for it for some time. The combination of removing downward transition altogether and introducing central funding has given a major shot in the arm to sectors that were expecting significant reductions in their rateable values. For the retail sector in particular - where falls in value of 30-60% are expected – this major concession will help rebalance the market much more quickly than would otherwise have happened.

What the government has said: Business rates relief for eligible retail, hospitality and leisure businesses is being extended and increased from 50 to 75 percent in 2023-24, up to a maximum of £110,000 per business. Around 230,000 properties will be eligible for the support, which is worth £2.1 billion overall.

Tim Beattie: This initiative brings welcome support to smaller businesses, but the £110,000 cap will mean it is of relatively little benefit to larger businesses in the sector.

What the government has said: The Supporting Small Businesses Scheme (SSBS) is being introduced to support over 80,000 small businesses that are losing eligibility for relief via the Small Business Rate Relief or Rural Rate Relief schemes. The SSBS ensures that none of these businesses will see a bill increase of more than £50 per month in 2023-24.

Tim Beattie: This is a welcome safety net for small businesses that lose eligibility for or support from the Small Business Rate Relief or Rural Rate Relief schemes.

What the government has said: In the Autumn Budget of 2021, a new Improvement Relief was announced, ensuring that ratepayers would be shielded for 12 months from any increase in rates arising from improvements to occupied properties. The relief will now be made available from April 2024, before being reviewed again in 2028.

Tim Beattie: Improvement Relief in England is very limited compared to the scheme that’s been introduced in Scotland. This delay is unlikely to prove that significant unless the Chancellor is using the time to bolster the measures next year and help incentivise growth in the UK economy through investment.

What the government has said: Following a consultation period, the government has decided not to introduce an Online Sales Tax. This decision reflects concerns about the complexity of an OST, along with the risk of creating unintentionally distorted or unfair outcomes between different business models.

Tim Beattie: This is not unexpected, given the muted response to the government’s consultation paper on their OST proposals. This is a tax that needs to be operated at an international level, rather than as a means of helping to fund part of the UK’s business rates system. The government’s decision suggests they have recognised this.

Tim Beattie: As I’ve said before, this is a very welcome budget in the current economic backdrop. The Chancellor has listened, and we hope that with this in mind he will eventually implement the other major ask from the rating industry and British business – a reduction in the rate multiplier back to the 34.8 pence seen when it was first introduced in 1990.