Business rates are undergoing their biggest shake-up for seven years.
So what does it mean for your business – and are the changes fair?
A new system based on property values in England and Wales means that businesses with high street properties will potentially experience large hikes to their rates. According to the FSB, 510,000 businesses will see an increase, 420,000 will see their rates stay the same and 920,000 will see a decrease.
‘It essentially discriminates against small businesses and leads to a homogenisation of the business landscape,’ says David Thorp, Executive Director at the Business Continuity Institute. ‘Business rates are always heavily in favour of established big organisations; and start-ups operating in a more uncertain part of the landscape are discouraged from taking on premises.’ For Thorp, the investment that companies ‘should be able to put into their business model is used up instead on necessary expenses for property.’
What would Thorp like to see the Government do differently? ‘Start-ups, and to an extent small businesses generally, should get payment holidays or reduced rates,’ he argues. ‘It’s in society’s interests to do this; the more small businesses there are, the more employers you have. If one part of society has disincentives, it’s negative for the broader economy.’ Thorp argues that this would not be difficult to manage in practice. ‘You can set criteria to ensure the benefits reach the right companies; a limit on the size of the premises for example.’
Weighing the figures
‘Our rates will be rising by 11.75%,’ says Ian Sutton, Managing Director at Milestone Creative, a design and branding agency in Buckinghamshire. ‘I’d hoped we wouldn’t suffer anything too catastrophic so had banished it from my mind. But this means our rates will go up by a significant amount each month.’ For Sutton, the recalibration unfairly penalises small businesses. ‘The Government has already taken away one of the few perks for directors of small companies,’ (i.e., being able to pay themselves tax-free dividends, which are now taxed after £2,000, reduced in the Budget from £5,000 and likely to be scrapped altogether in the future.) ‘Small companies need encouragement and a few breaks in order to survive – but they seem to give corporates very generous allowances.’
The FSB believes that up to a fifth of small businesses are now considering selling up or closing altogether, fearing that the rises will make their businesses unsustainable. Of these, almost half are expecting their annual bills to rise by at least £1,000.
‘Lots of small businesses will have huge hikes,’ Sutton says, ‘perhaps even doubling, because the values of their properties have climbed so high in seven years – that’s hardly their fault.’
Does Sutton think this will lead to the hollowing-out of the high street? ‘Possibly. Traditionally a lot of SMEs are either shops, or work in small offices above shops. These are the companies who will suffer.’ Milestone, a company that has seen tremendous growth in the last two years despite Brexit fears, was based in high street offices for most of its 20 years and has only moved to former farm premises relatively recently. ‘If we were still in our old offices we would be very concerned. Town centres need small independent businesses, they need service providers, and they need people in the town spending money. It’s very sad when every high street is a clone of the next with national chains.’
Kyleigh Orlebar, owner of Kyleigh’s Papercuts in Wimborne, is someone in this very situation; with a workshop and shopfront in a highly affluent part of the UK, Orlebar feels concerned that entrepreneurs and those setting up their own business are not being supported. ‘Too many unique shopfronts are disappearing to be replaced by national chains. The rise in business rates is another additional burden for small businesses who appear to be targeted repeatedly at the moment; does the Government really want everyone to get a job working for a corporate, because it’s now becoming so risky trying to fend for yourself?’
The future for professional services
Going forward, ‘this may promote more office share ideas,’ says Sutton; ‘hubs for start-ups and businesses. There are lots of those around and perhaps councils can encourage more of that.’ The FSB wants councils to go further, by exercising their powers for discretionary relief to protect the local small business community. London is particularly badly hit, the FSB argues, ‘because of the big jump in the capital’s property values which means that the vast majority of small firms cannot qualify for small business rate relief.’ The FSB wants to see a ‘London weighting’ being created to increase thresholds for London-based companies.
Ian Sutton’s experiences show the problems faced by professional services such as accountants and bookkeepers. A way to deal with this is to avoid the high street altogether – increasingly, accountants are operating from home and not setting up premises. But for David Thorp, this leads to a change in the landscape on the high street that benefits no one. ‘Younger people setting up and taking a chance are the future’s senior people. As we see the economy changing – the gig economy and downsizing becoming prevalent – where are the incentives to strike out on your own?’
A few years ago, Thorp argues, disused industrial buildings would be divided up into smaller units to bring them back to life as manufacturing, renovation and retail units. To stimulate this growth, business rates were set extremely low. It was, for Thorp, a major incentive to new businesses and created considerable growth in the economy. Today, we’re seeing the opposite happening – out-of-town warehouses owned by the likes of Amazon will see their rates reduced, whereas town and village centre businesses will suffer. ‘No one is arguing that Pizza Express and Starbucks shouldn’t get the advantage of discounted rates,’ Thorp clarifies, ‘but look at how many big high street names have been run to ruin by excessive business rate rises. You end up with betting shops, discount stores and national chains – and the character goes out of the high street.’
Facts and figures
Who will be affected? Anyone who pays business rates on premises with rateable value higher than £12,000.
What are the new rates? Use the business rates calculator, available here.
When do they come into effect? 1 April 2017.
Note that in Northern Ireland and Scotland, business rates are calculated differently.
Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.