'We need business rates reform not crippling hikes' trade groups tell Rishi Sunak ahead of Budget

Small firms still trying to recover from the pandemic are pleading with Rishi Sunak to not to impose crippling hikes in business rates and instead reform the model completely.

Trade bodies have warned firms could go under unless the chancellor delivers on a manifesto pledge to reduce the burden of business rates in his statement later this month.

Sat on Chester’s historic high street, The Eatery cafe is just about covering its business rates as it stands. If rates revert to pre-pandemic levels, as has been hinted at, they will triple, leaving the cafe struggling to stay afloat.

To make matters worse, if his business was located just down the road in Wales, joint-owner Marcus Thomas would save nearly £5,000 as the Welsh government has extended the full 100 per cent discount for all businesses until April.

“At the moment we’re paying £350 per month, so if we’re paying the full whack in six months time that’ll be over £1,000 a month” he told The Big Issue.

The government froze business rates for retail, hospitality and leisure during Summer 2020 as high streets emptied during lockdowns. The rates were reintroduced with a 66 per cent cut in 2021, and look likely to revert back to their former rates from April. 

“We’re still in a pandemic, just because we’re open doesn’t mean we’re back to normal” Thomas said.

He fears the combined pressure of increased business rates and an increase to the VAT rate from April 2022 will force him to cut staff hours, something he desperately doesn’t want to do.

“I might have to start trimming off the odd half hour here or there when people come in and people go home, and you feel bad because obviously it has an impact on them, they’re in the same position as me just trying to pay their bills.”

The chancellor is expected to announce minor tweaks to the business rates regime in his upcoming budget announcement, but “wholesale reform” has reportedly been shelved until a later date. 

The Conservative Party had, in their election manifesto, promised to reduce the “overall burden” of business rates at its first budget review.

Businesses are looking for support from Sunak as they face the compounding challenges of increased energy bills, increased food prices, supply chain issues causing shortages of essential ingredients. 

A statement from the Confederation of British Industry (CBI) and 41 other leading trade groups is demanding fundamental changes to the business rates system that taxes all companies for their trading premises. 

Labour have promised to freeze business rates and undertake the “biggest overhaul of business taxation in a generation,” said shadow chancellor Rachel Reeves and the party’s recent conference. 

The current system “penalises high-street shops in favour of online giants and deters businesses from investing in new green technologies,” said Reeves in response to the CBI statement.

As it stands, owners investing in green technology such as solar panels would increase the value of their premises, and therefore increase the amount of business rates they’d have to pay. 

Reforming the current business rates system could unleash a wave of business investment that would support the goal to reach net zero climate emissions and levelling up, argues the CBI. 

“Business rates do need to be reformed as the current system is too complex and disincentives business investment and local economic growth,” Andrew Carter, chief executive of The Centre for Cities told The Big Issue. 

The chancellor should update the valuation process that calculates how much firms pay, simplify the complex system of discounts and exemptions and allow local authorities to keep 100% of business rate revenue growth – rather than hand it to the Treasury.”