Business rates slashed for one year; incentives for green investments

Chancellor of the Exchequer Rishi Sunak holds the budget box outside Downing Street in London, Britain, October 27, 2021. REUTERS/Peter Nicholls

Chancellor Rishi Sunak said he would cut business rates for one year for the sectors hardest hit by the pandemic such as retail and hospitality, and tweak the system to incentivise green investments.

Business rates are charged on commercial premises such as shops, offices, pubs and warehouses, based on the value of the property. Business owners have complained for years that the system hands an unfair cost advantage to online retailers such as Amazon.

Sunak’s Treasury department has been reviewing the business rate system, which was suspended during the pandemic for the worst-hit sectors, and he told parliament when presenting his budget that there would be a new 50 per cent business rates discount for businesses for one year.

“I’m announcing today, for one year, a new 50 per cent business rates discount for businesses in the retail, hospitality, and leisure sectors,” he said. “Any eligible business can claim a discount on their bills of 50 per cent, up to a maximum of £110,000.”

Sunak added that this tax cut will be worth almost £1.7bn, and together with Small Business Rates Relief, over 90 per cent of all retail, hospitality and leisure businesses will see a discount of at least 50 per cent.

Turning to measures aimed at incentivising green investments he added: “We’re introducing a new investment relief to encourage businesses to adopt green technologies like solar panels.”

Sunak announced that green investments such as solar panels and heat pumps would be exempt from business rates. Additionally, investment in improvements to businesses will not be subject to business rates for 12 months after that investment is made.

Responding to the proposals, the Association of Convenience Stores (ACS) has welcomed the Chancellor’s action to support businesses through green investment incentives.

“It was great to see the Chancellor announce action to incentivise investment through the business rates system, something we have been calling for in our discussions with Ministers for many years,” James Lowman, ACS chief executive, said.

“The 50 per cent relief on 2022/23 business rates is a significant step towards our recommendation for a full exemption for premises under £51,000 rateable value. While these measures are welcome in the short term, they must be supported by long term reform of the business rates system that ensures that retailers can focus on driving growth, efficiency and productivity,” he added.

‘Double-edged sword’

The Federation of Independent Retailers (NFRN) said the spending review represents a ‘double-edged sword’ for smaller businesses, with the increase in the national minimum wage from £8.91 to £9.50 an hour.

“In an ideal world, we would all like to pay our staff more, and we can understand the Chancellor’s desire to help people at the lower end of the pay scale. But the headline increase in the wage rate does not include the increase in National Insurance and pension contributions, as well as the forthcoming social care levy, that employers also have to pay,” Narinder Randhawa, NFRN national president, said.

“Rather than boosting many shop workers’ incomes, the increase in the minimum wage will have the opposite effect of threatening jobs in the sector.”

Lowman also noted that the wage rise will significantly increase the costs of running stores.

“We now need to see an Employment Bill to tackle the burgeoning shadow labour market based on avoiding paying the National Living Wage and other costs, using gig economy practices to undercut the flexible and secure work offered by local shops,” he said.

Randhawa welcomed the cancellation of a planned increase on fuel duty, saying it will come as a relief to those retailers who provide home delivery services. With respect to the business rates cut, he reiterated the demand for an overhaul of the system.

“While we broadly welcome the decision to freeze business rates and offer a 50 per cent discount for one year, we will continue to push for long-term reforms to make the system fairer for the independent retail sector,” he said.

Alcohol duty rates

The Chancellor also announced widespread changes to the duty rates system, reducing the total number of alcohol duty rates from 15 to six in an attempt to simplify the system. However, he also introduced a new 5 per cent ‘draught relief’ on draught beer and cider sold in the on-trade.

On alcohol duty rates, Lowman said: “On one hand, the Chancellor is implementing reform of duty rates to make the system simpler, but on the other, the new ‘draught relief’ will make the system more confusing. As the line between on-trade and off-trade becomes increasingly blurred, duty should be applied at the highest point of the supply chain. We urge the government to focus on tackling the billions of pounds worth of non-duty paid alcohol that is damaging responsible retail businesses and the communities that they serve.”

Additional measures announced in the Budget that will affect the convenience sector include:

  • The £1m annual investment allowance will be extended to March 2023 (was previously set to end in December this year)
  • Business rates revaluations will take place every three years from 2023
  • The planned increase in the business rates multiplier in April 2022 will be cancelled
  • There will be a 50 per cent business rates discount for qualifying retail businesses for one year up to a maximum of £110,000.
  • The duty premium of 28 per cent on sparkling wines will end, resulting in these products paying the same duty as still wines of equivalent strength
  • The planned duty increases on alcohol have been cancelled
  • The planned duty increases on fuel have been cancelled
  • Duty rates on all tobacco products will increase and the minimum excise tax will increase by RPI +3 per cent this year