Author Mark Fairlie

Britain’s business are about to be hit with the biggest rise in non-domestic rates (also known as business rates) for the last six years.

The total increase in business rates bills will top £1.2bn, with retailers facing £301m of that increase.

Mark Rigby, chief executive of CVS, the business rent and rate monitoring firm, told City AM that “Increases to business rates bills next year, at the level reported for May or higher, could lead to a tsunami of store closures.”

What are business rates?

Business rates are like council tax for companies. They’re paid regardless of whether the business occupying the space makes any money or not. They’re even paid on commercial properties where there is no sitting tenant.

The Valuations Office decides what the “rateable value” (or “net annual value” in Northern Ireland) of commercial premises is. It doesn’t matter what the business actually pays in rent – it’s only the Valuations Office’s opinion of what they are worth that counts. In Scotland, it’s the Scottish Assessors Association that produces the “open market rental value”.

If a business’s premises are worth less than £12,000, no business rates are payable.

If it’s worth more than £15,000, a “multiple” is applied to the rateable value. Between £15,001 and £51,000, that multiple is 47.9p. So, let’s say the Valuations Office thinks your premises are worth £25,000. The council takes £25,000, multiplies it by 0.479p, and that’s how much your company will pay in business rates that year – in this case, £11,975.

If your premises are worth more than £51,000, the multiplier is higher. Between £12,000 and £15,000, you pay some business rates but it’s subsidised.

Please note that different multipliers apply in Scotland, Wales, Northern Ireland, and the City of London.

Why are rates going up?

The multipliers rise each year with the Retail Price Index (RPI). This is one of two ways of measuring inflation (the other one being the Consumer Price Index (CPI)). Because of the way it’s structured, the Retail Price Index is nearly always higher.

The RPI figure for September is the one that’s used to work out how much business rate multipliers will rise. For this September, the RPI figure is 3.8%.

Business rates increasing

What is the reaction to the increase?

Mark Rigby, chief executive of CVS, quoted earlier and mentioned in an article on Costar magazine wants the government to switch from using the RPI figure to the CPI alternative.

He went on: “Retailers are experiencing the weakest sales since June 2013 and higher operational costs through increases to both the National and Minimum Living Wages, the introduction of the Apprenticeship Levy and higher business rates bills overall of 3.8%. It does beg the question, how much more are businesses expected to take?”

The pub industry fears it will be hard hit, estimating an average rate rise bill of £1,500 or more for each pub. A number of different bodies representing pubs and consumers have joined together calling the present system “skewed and unfair”, reports The Morning Advertiser, a news website for the trade.

Chief Executive for the British Retail Consortium, Helen Dickinson, told trade website Talking Retail: “For many shops this may be the last straw. Across the country, especially in economically deprived and vulnerable communities, the cost of failing to take action will likely be seen in yet more empty shops and gap-toothed high streets …

“Ministers mustn’t bury their heads in the sand. In his Budget next month, the chancellor needs to get a grip on the matter and rule out a rise in business rates to help save shops, protect jobs, and preserve high streets.”

Children’s nurseries too are protesting, calling for business rates to be scrapped for the sector altogether. Trade website Nursery World cites one reader whose business rates bills have risen by 135% in recent years through revaluation and multiplier increases. Another reader, Sue Johnson, owner of Scamps in Oxfordshire, told reporter Catherine Gaunt:

“The leap is so great … I was paying £13,000 before April and I’m now paying £17,500. I’m in the middle of appealing at the moment. I pay my business rates and get nothing in return … I have to pay a private contractor £10,000 a year just for having my bins collected.”