PwC comments on Business Rates ahead of the Budget

Published at 13:38 PM on 22 February 2017

The most pressing concern for the Chancellor is a wave of criticism of the current business rates system and in particular the large increases faced by many ratepayers from 1 April 2017 after the revaluation takes effect.

A feature of the business rates system is that there is a system of Transitional Arrangements that shield ratepayers from the rises but these are meant to be self-financing, so reliefs that curtail increases in rates bills are paid for by holding back the full effect of any decreases from ratepayers who are better off.

Phil Vernon, head of rating at PwC, said:

"If the Chancellor wants to help ratepayers facing large increases, the fastest and most effective method is to adjust the thresholds of the Transition Scheme that protects ratepayers from large rises. However, he will have to wrestle with the mechanics of the Scheme as this would need to be financed by restricting reductions from other ratepayers who are expecting a much-needed decrease in their bills.

“The 2017 revaluation is unusual because the national picture is so uneven, with ratepayers in areas with lower rental values expecting a decrease in their annual rates bills while London is facing huge rises, due to a much stronger rental market. Currently, business premises under a rateable value of £20,000 (£28,000 in London) are shielded from the worst increases as the scheme limits their April 2017 increases to around 5%. Medium-sized business premises (up to rateable value £100,000) will receive protection of rises capped at 12.5%. However, business premises with a rateable value greater than £100,000 will see increases of up to 42%. 

"The Chancellor could make an immediate impact by adjusting the relief thresholds and capturing more small businesses in the 5% bracket. Targeted help for London may be an option, with the removal of the medium-band 12.5% increase cap for rateable values between £28,000 - £100,000, and extending the 5% increase limit for rateable values up to £100,000.

“Any significant amendment to the Transitional Arrangements will mean that the Chancellor may have to break one of the rules of the rating transition system, which is to remove the requirement for the scheme to be self-financing, and allocate cash from other sources to curb large rates increases."

ENDS


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