Business rates have existed in one form or another since 1572. Over the intervening 445 years, the evolution of business has seen practices move from living above the shop, to office work, homeworking, the gig economy and online trading.
The shift to online trading is the most significant in the business rates story, with technological change allowing businesses of all types to move online. This move raises real questions about the relevance of a tax put on the physical structure of a building.
Unfortunately, despite the nature of work changing so significantly, particularly in the online space, the business rates system has remained stuck in the past. So it is no longer fit for purpose. Currently, a business must pay £1 in business rates before it even earns £1 in turnover, let alone £1 in profit. Speaking to small businesses around the UK, this system is creating huge concern and anxiety, with many wondering how much longer they can last.
More than half (55%) of small businesses told us they were planning to reduce, postpone or cancel investment in their business. Additionally, one in five (19%) of those businesses affected by increased rates, said they may ultimately consider closing down or selling their business as a result of the hikes in their bills.
Many of these small businesses have contacted us to say that these increases in their tax bills are completely unfair and disproportionate and, as such, they are considering scaling back their business. This is in no one’s interest and puts productivity and greater growth at risk.
In the spring budget, small businesses were thrown a lifeline when the chancellor announced a £300 million relief fund to help keep the hardest hit businesses afloat. But fast forward four months and many small businesses are still waiting to be told whether they will receive help. If that wasn’t hard enough, local authorities have now begun chasing up new inflated bills based on the April revaluation.
In response the Federation of Small Businesses has sent a letter to the communities secretary, Sajid Javid. The central thrust of our message is for the department to show clear leadership by sending a letter of direction to local councils in England to urgently initiate the roll out of the hardship fund by implementing their local relief schemes.
Looking at the current timetable, businesses won’t get any relief for another month or two at the earliest. This is a full five or six months after the revaluation.
Ill-timing has led to delay with the announcement of the relief fund being hastily followed by the call for a general election leading to a ‘purdah period’. With parliament grinding to a halt so that MPs could hit the campaign trail, many local authorities have not even started consulting on how this money is going to be distributed.
Patience may be a virtue, but the inconvenient truth is that the delay in distributing this fund, has left many of these businesses on the brink.
Businesses already staring down inflated bills could also be faced with court summons and liability orders as a result of their inability to pay. This just increases the pressure on small businesses as they face up to mounting costs coupled with a likely negative effect on their credit rating which would make it more difficult to secure future finance.
This is a completely unacceptable situation that is putting at risk the livelihood of many entrepreneurs who have taken the brave step of opening up their own business.
For some businesses, it is already too little and too late. I recently spoke to a local London business that had no choice but to close its doors after five years of trading. The reason was simple – business rate hikes and the inability to make ends meet anymore.
These business rates increases have come at the worst possible time, with small businesses facing the highest costs of doing business for the last four years and the political uncertainty created by the outcome of the general election.
I fear that this will be an all too common conversation if small businesses’ cries for support continue to be met with warm words followed by inertia. Small firms are the heart and soul of our local communities, as well as acting as the engine of UK growth. Without them, our communities and economy will be irreversibly damaged.
Mike Cherry is the national chair of the Federation of Small Businesses
