What changes could the government be considering on business rates?

“Many businesses, especially prospective retailers from abroad, will not invest unless they understand the market they are entering,” says Colliers head of business rates John Webber.

The call for clarity grew louder last week, with Sainsbury’s CEO Simon Roberts urging the government to deliver on its promise to reform a tax which he said was “directly causing store closures and job losses across the sector”.

Yet the sector still has only the vague plan set out in the manifesto – of a “new system” to “level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship” – to go on.

So, with the industry left to fill in the blanks, what are the new government’s realistic options when it comes to reforming business rates? And what changes is it likely to be contemplating?

Labour’s manifesto promised to replace business rates in England with a new system raising “the same revenue but in a fairer way”, meaning that no matter what, someone must bear the pain of the £30bn currently raised, says Webber.

Its talk of “levelling the playing field” could indicate an intention to resurrect plans which the party scrapped last year for a digital services tax, including a £3bn raid on tech companies such as Amazon and Facebook, says Webber. But that could risk a trade war with the US – the reason Labour abandoned the plan, following warnings it could provoke retaliatory trade sanctions from the Biden administration.

Another clue could lie in the manifesto’s mention of “tackling empty properties”, a possible reference to a ‘new shops bonus’ which Labour called for last year. The plan would see shops offered a three-month rates holiday in the first year in new premises, but not applied until months seven to nine, the aim being to ensure the business it viable before benefitting. The discount would be paid for by reallocating funding currently used to provide three months of ‘empty property relief’.

Webber argues months seven to nine could be too late for new shops, since most new business failures are “due to a lack of cashflow in the early months”. Meanwhile, stripping empty rates relief from landlords would “do nothing to speed reletting”, with a gap of up to 12 months between tenants often unavoidable.

Under pressure to do something to ease the burden, Labour could also look for a short-term fix in simply postponing the next business rates revaluation, which is due to increase the tax burden in 2026 in line with climbing retail rental values.

“Labour may decide to postpone the revaluation to keep retail rateable values at their current low state,” says Webber. “Otherwise it will be hard to see how they will keep their promises of defending the high street.”

But Daniel Cook, partner in commercial at property consultancy Rapleys, warns: “If the government were to go down this route, it wouldn’t help the industrial and logistics sector”, for which the revaluation may reduce the bill.

“In this case, industrial rents are at an unprecedented high level, having increased by over 40% since 2017. Given the importance of industrial property to the supply chain and wider retail, this wouldn’t be a helpful move for large swathes of retail businesses,” says Cook.

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In the meantime, with Labour expected to raise taxes to fill a black hole in public finances in the autumn statement, it would be “naive” to expect radical change to that most certain of taxes – business rates – says Webber.

Nik Moore, Rapleys head of business rates, adds: “The current, very complex, process has already been reviewed numerous times and, given the size of the tax take and the ease and low cost of collection, it will be hard for any really meaningful change to happen.

“But we hope the government sticks to their word and not only reduces the disparity and hardship for small businesses but incentivises entrepreneurship, too.

“Perhaps the cabinet are still working out how to ensure the same level of revenue from a new system. Perhaps there will be another consultation, or perhaps deliverability is being tested – but time is of the essence, particularly when it comes to our high streets and hospitality sectors.”