Business Rate reform – best keep the champagne on ice

Despite the British government's grand standing last week a review of Business Rates is still a long way off.

Last week George Osborne used a mix of hand outs and promises to persuade small businesses that he feels their pain and is committed to restructuring the business rate levy.

In reality, reform of the property tax is still a long way off. With billions to balance on the Government's books he will be loathed to hand back any of the £25bn he currently claws in from Business Rates, so any changes will have to be revenue neutral and that ties the hands of reformists before they even take the lids off their Mont Blancs.

The review is scheduled to report in 2016 – again time is not that pressing as far as Mr Osborne is concerned and that is assuming he still has a job in Government. Labour's Ed Balls would have to live up to his name however if he were to renege on the Review promise and risk the small business and retail vote.

As it stand at the moment, retailers bear the brunt of business rates and pay around a quarter of the annual bill. For them it is a fixed cost, charged upfront before they even open the blinds.

The last rating revaluation was in 2010 and was based on values set in 2008 – the height of the market. For several years, revenues and profits have tanked, rental yields fallen but business rates have continued to rise.

Retail lobbyists have been hard at it for years, pressing the case for their sector. Their answer would to exempt the 1m smallest businesses that pay just 6% of the total tax take and then recalculate the rateable values of the remaining qualifying businesses more frequently.

They say it would immediately create a more flexible tax, sensitive to trading patterns and economic fluctuations. The £40m or so that it costs to rate 1.8m premises could be used to revalue 800,000 hereditaments annually instead.

Up to now, though, the government has shown little interest in radical change. It has introduced discounts, caps and cash back for very small enterprises. But at the same time it postponed the five-yearly review of rateable values due in 2013 to next year.

Thousands of small businesses are, therefore, paying rates fixed on pre-downturn values in 2008 that have then increased every year, generally in line with inflation.

So it has taken a looming election to get business rates in the national headlines. But as the Financial Times said earlier this week: "….a note to shopkeepers: put the champagne back in the fridge. For all the electioneering talk that full reform of business rates is at hand, it is in reality, far, far away."