Twelve days ago, the Government announced its intention to postpone the next business rates revaluation in England to 2017. The immediate industry reaction was almost unilaterally one of bemusement, despair and anger, and you have only to look at this Guardian piece from that very same morning to understand why that was the case.
All of the industry experts' voices chime on one particular point: that a business rate based on pre-recession property valuations is not only unfair; but showcases a wilful ignorance on the Government's part to adjust rates to reflect the depressed market in which retailers find themselves.
For their part, the Government has claimed that the continuation of the increase in business rates is designed purely to remove uncertainty - thereby helping retailers prepare more adequately for their impending doom. Sorry, future budgets.
Party lines aside, there might be another, policy-based reason to keep business rates steadily climbing until 2017.
Since the rates statement was made on October 18th, Business Rates Retention Draft legislations have been published, which give local authorities the ability to retain 50% of all business rates generated in their area - with the remaining half going to the Treasury. The draft policy also includes the provision of a 'safety net', which is a mechanism protecting local councils from economic shocks caused by a drop-off in their business rate income.
The safety net comes into effect when a council's yearly income from non-domestic rates is [X] percent lower than its baseline funding level, or its total spending level. The exact percentage has not been decided yet - but it is believed to be between 7.5% and 10%. The safety net is to be funded through a levy paid by local authorities whose income from business rates is higher than their spending baselines.
In my view, the Government is maintaining the business rates increase - at least partially - to ensure that this safety net is used as infrequently as possible. It appears to give even struggling councils the best chance to achieve the requisite income from business rates to not have to use the money generated by the more prosperous ones. The Government can take from the rich, but avoid giving to the poor - thus protecting itself from the charge of giving with one hand and taking away with the other.
Except, that is exactly what it's doing. Not to councils, necessarily, but to the U.K. retail market. With one face, the government is helping to assemble a crack team to help diagnose and if-at-all-possible-surgically-remove all problems currently facing the high street and retail businesses; whilst with another is telling them to do it with their hands tied behind their back, on a trampoline, in space. Predictably, that request hasn't gone down altogether well.
If the government follows through with its intention, it will come as a hammer blow to retailers desperate for financial respite; and may serve to demoralise those who so vociferously champion high street recovery. A sharp eye must be kept on the Communities and Local Government over the next few months to see which course of action is taken over both of these pivotal policies.
