Business rate cuts: are they enough to support faltering businesses?

Business rates, the tax on non-domestic property, date back to the 16th century in Tudor times. Other notable Tudor practices include the decapitation of spouses, bathing once a year and cleaning teeth with sugar. Most economists are in agreement that the old laws ought to be reformed, but the Treasury is less keen to discard a system that brings in a cool £25bn per year. Rishi Sunak, however, is introducing a tax relief plan that he claims will provide 90% of leisure, hospitality and retail companies ‘a discount of at least 50%’. The plan will help small businesses most, leaving to some to wonder if others won’t be hung out to dry. Are the cuts expansive enough to give businesses the economic crutch they need?

A plan to heal wounded sectors

As if there weren’t enough issues facing brick-and-mortar establishments, sky-high business rates are yet another reason why it’s better to be Amazon than most physical establishments. While Mr. Sunak has dismissed the possibility of scrapping the business rates system altogether, citing their ‘central role in the tax system’, the reductions, together with a decision to reevaluate the tax scheme every 3 years instead of every 5, will prove a significant help to the sectors knocked hardest by the pandemic. The Chancellor also announced the possibility of introducing an online retail tax, further evening the scale that seems to tip forever in the favour of online vendors.

Who makes the cut, and who misses out?

The relief plan is a win for the underdog. The cuts are capped at a maximum of £110,000 per company, meaning that businesses with larger premises or multiple locations are likely to feel slighted. Most larger companies however, have an online presence that fortified them against the worst of the pandemic. Smaller businesses relying on in-person sales suffered badly, and the cuts will benefit those most of all.

Being that this is Britain, complaints were of course voiced. Chief among them is the concern over the plan’s duration — lasting only a year, will the temporary release from normal tax levels prove an insufficient boost to the industries’ much-needed recovery? The CBI (Confederation of British Industry) director general Tony Danker remarked that the government ‘missed the opportunity to truly reform a business rates system that diminishes Britain’s high streets and factories’.

Equally, the plan is limited to three sectors in the direst need — leisure, retail and hospitality. While this already casts a wide net, many businesses will not be benefiting from the scheme. Financial services, medical services (vets, doctors, dentists) and professional services (accountants, solicitors, business advisors) are not invited to the party. Newspapers, however, have not been quick to take up their cause, focusing instead on the year-long duration as a main issue.

Is it enough?

Nobody likes taxes. However much the government cuts in these times of hardship, lobbyists, unions and business owners will always stretch their palms out further and demand more. The fact is that Mr. Sunak has yet again provided a timely solution to a pressing issue. The UK’s handling of the crisis has been far from perfect, but wherever there has been a stink, Rishi Sunak has been there, hearing out complaints and responding with appropriate action. Ross Pike of Koreti LTD (Koreti.com) – a small business in web design remarks, “Many have criticised the British government at large for its delays in addressing pandemic-related issues, but it’s remarkably difficult to fault Mr. Sunak for his part. Whether or not you agree with the solutions, he has responded quickly to most of the problems that have arisen.” The reduced taxes for brick-and-mortar businesses will provide financial cushioning to ease the transition to post-pandemic commerce. It may not be perfect, but as the affected industries deal with shortages and other internal issues, there is unlikely to be a perfect remedy

Some economists argue that the tax itself is dubious and should be completely rethought, but this view is not unanimous. Most have greeted Sunak’s news with delight, including Lesley Lewis, owner of Soho restaurant The French House, who commented, ‘It’s fabulous! The business rate cut will save me over £50,000 a year which we can invest into other things, staff and the rest of it – happy days!’ Given negative headlines sell better than positives, it’s unsurprising that complaints are resounding through the blogosphere, but likely that most of those working in hospitality, leisure and retail are dancing in glee at the news.

As we inch our way out the pandemic, businesses have still many reasons to be concerned about the future. Rising rent prices, utility bills and widespread staff shortages are just some of the issues plaguing UK companies. Given these hardships (that the government can do little to alleviate), assistance such as that provided via business rate cuts are the best way for the government to pave the road to recovery. Alan Jenkins of exhibition contractor Quadrant2Design comments, ‘It is imperative that the government do what it can to smooth out the next year of recovery, but ultimately it will take an influx of fresh business to get companies back on their feet. Investments are welcome but will not by themselves sustain a struggling industry.’ Even one such as Rishi who straddles the border of man and superhero cannot simply descend from his winged chariot and lift whole industries out of the mud. While he works on developing this skill, business rate cuts are a welcome intermediary measure.

Author Bio

Theo Reilly is an independent writer and multilingual translator whose goal is to counteract stale writing in business blogs. Theo has particular interest in business and marketing-related matters surrounding the online world, web design, exhibitions and events.