The 2020 Budget announced by the Chancellor, the Right Honourable Rishi Sunak MP, contains a number of measures relating to business rates, some of them specifically related to the Covid-19 outbreak, and others with longer-term changes in mind.

The immediate changes grabbed the headlines, with the retail property rates discount, which had already been increased from 33% to 50% for the 2020/21 rate year, being further doubled to 100% relief for the year, for properties with a rateable value below £51,000 in England. In response to the Covid-19 outbreak, the application of this discount will be extended to include hospitality and leisure properties.

The doubling of this discount will be a substantial benefit to smaller retailers, and will now be extended to include hospitality and leisure properties with a rateable value of less than £51,000, such as museums, theatres, gyms and hotels.

However, for larger businesses, there may be very little in this extension to the discount. Firstly, because the extended discount will only apply to properties with rateable value less than £51,000 and, secondly, because discretionary discounts such as these are limited by “state aid” rules. These rules limit the total amount of discretionary state aid, whether from business rates reliefs or any other sources, to a maximum amount of approximately £180,000 over any rolling three-year period. The limitation on relief applies to an “undertaking”, which is a company, or group of companies. This means that many of the country’s largest businesses will see little or no benefit from this discount, either because they have already reached their maximum amount of “state aid”, or because their properties are too large to qualify. These larger businesses will not be insulated from the effects of the Covid-19 outbreak, but may well be unable to take advantage of any of the reliefs being offered.

The rates discount previously announced for pubs with a rateable value below £100,000, which was a discount of £1,000 for the 2020/21 rate year, has also been substantially increased to reflect disruption from the virus outbreak. The discount will now be £5,000 for the 2020/21 year.

Two other rates relief packages also re-emerged in the budget announcements. The first of these is a rates discount for local newspaper offices, of £1,500 per annum, which will now be extended to 2025. The second is legislation to provide 100% business rates relief for standalone public lavatories. This legislation had been introduced by the previous government, but was lost when Parliament was prorogued and will now be reintroduced.

Whether these short-term measures will be sufficient to enable businesses to weather the effects of the virus outbreak remains to be seen. Larger businesses are major employers and could well be every bit as hard-hit by the virus outbreak as smaller businesses, but will be limited by the state aid rules, and rateable value limits, as to the benefits they can receive. We do wonder whether, as the virus outbreak progresses, government may see the need to assist larger businesses, perhaps by suspending the state aid rules.

All businesses should be glad to hear that the “fundamental review” of business rates, promised by the government as part of its election manifesto, has surfaced as part of the budget announcements. The terms of reference were published alongside the budget statement and include objectives of:

  • reducing the overall burden on businesses
  • improving the current business rates system
  • considering more fundamental changes in the medium-to-long term

The review will look at improvements that could be made from April 2021, to come into force alongside the rating revaluation at that time. The terms of reference make clear that these improvements will also include a review of transitional adjustments to rate liability following the revaluation.

As well as this, the review will consider longer term changes to the basis of the tax, which might include the introduction of land value tax, and changes to the way in which the tax is administered.

It is encouraging to see a fundamental review finally seeing the light of day, and particularly one which will, it appears, not be constrained by a requirement for fiscal neutrality. This review will call for evidence during spring 2020, with the aim of reporting in time for the autumn statement 2020. All businesses must hope that this will, finally, address the twin problems of the excessive burden of business rates (the UK has the highest level of recurrent taxes on commercial property of any OECD country) and the ridiculous complexity of a system that incorporates so many exemptions, reliefs, and supplements, that even the most experienced professionals can struggle to calculate rates liabilities.