Business Rates
Labour has promised fundamental change to the Business Rates system. But what changes are proposed and when will they be introduced?
For several years, the Labour Party has targeted Business Rates as a tax in need of reform. In September 2021, Rachel Reeves stated,
“the next Labour government will scrap Business Rates altogether. And here is our guarantee: the system we replace it with will incentivise investment; promote entrepreneurship; reward businesses that move into empty premises”
This sentiment was echoed in the Labour plan for small businesses released late last year, which declared:
“The UK’s Business Rates system is not fit for purpose. It is a huge burden on our high streets and, as our economy has moved more online, our tax system has failed to keep up. This means that bricks and mortar businesses are now paying disproportionately more than their online competitors which is hitting small businesses and our high streets hard. Labour will scrap the current Business Rates system and replace it with a fully costed and fully funded system of business property taxation that is fit for the 21st century. Our new system will reduce the burden on high streets, rather than making those businesses that are the heart of our communities pay more than their fair share of tax.”
In their election manifesto, Labour stated, “The current Business Rates system disincentivises investment, creates uncertainty and places an undue burden on our high streets. In England, Labour will replace the Business Rates system, so we can raise the same revenue but in a fairer way. This new system will level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship”.
Although change is on the horizon, details regarding the specific proposals and their implementation timeline remain scarce. An analysis of the brief statements in the manifesto provides some limited guidance on what is being proposed:
Level of the Tax
The manifesto indicates that the new system of property taxation will “raise the same revenue but in a fairer way.” This is likely to disappoint businesses, as the primary criticism of Business Rates is not their mechanics but the high tax level. When the modern rating system was introduced in 1990, the tax rate was just under 35% of a property’s rental value. This rate has now risen to almost 55% and increases in line with CPI inflation.
The High Street
The manifesto suggests that the ‘High Street’ will benefit from the new system. It acknowledges that current Business Rates place “an undue burden on our high streets”. This burden can only be alleviated by reducing the level of rates paid by ‘High Street’ retailers. The aim to “level the playing field between the ‘High Street’ and online giants” could simply mean reducing the rates payable by ‘High Street’ retailers. Perhaps more likely though is that in addition to cutting rates on the ‘High Street’ there will also be a greater tax levied on the “online giants”.
Empty Properties
The manifesto’s promise to “tackle empty properties” is ambiguous. It could mean providing incentives for occupiers to take on long-term vacant units or penalizing landlords for not letting vacant units. The latter would be unfortunate, as vacancies are typically due to a lack of market demand rather than any desire from landlords to keep premises empty.
England
The proposals appear to be restricted to England, as Business Rates are devolved in Scotland, Wales, and Northern Ireland.
There has been no commentary on what form the new Business Rates system will take. It seems unlikely that the established system based on a property’s rental value will be abandoned. Instead, changes will probably relate to areas such as the levels of the Uniform Business Rate and modifications to the existing multitude of reliefs. The Government’s Valuation Office Agency are already working on the next nationwide Rating Revaluation, scheduled for 1 April 2026. The introduction of the new Business Rates system could coincide with this revaluation. Business Rates are a major cost for businesses. The lack of detail regarding the proposed changes will lead to significant uncertainty for businesses until such time as the plans for the new system are announced.