Select Committee on Transport, Local Government and the Regions Fifteenth Report

Part 5: Non-domestic rates

Clause 69: Small business rate relief

39. The Bill includes proposals for the introduction of rate relief for small businesses. There are clear concerns that an unintended consequence of such a scheme could be an increase in the rent charged by the landlords of small businesses, ultimately resulting in little or no benefit to the small business.[51] The Government should monitor the introduction of small business rate relief very closely to ensure that the benefit goes to the businesses and not to their landlords.

40. We have received evidence that the thresholds set for small business rate relief are too low to be of benefit to many small businesses. The Explanatory Notes indicate that this power will be used to implement the scheme set out in the White Paper Strong Local Leadership: Quality Public Services, i.e. to make mandatory rate relief available at 50% for properties up to £3,000 rateable value and will then decline on a sliding scale as rateable value increases, reaching no relief at £8,000 rateable value. The Association of Convenience Stores stated,

"For a small store a turnover of £4,000 per week is the minimum necessary to make a store viable, and the proposed threshold suggests a weekly turnover of less than £1,346. A store that has this low level of turnover has little chance of long term survival even if it received rate relief."[52]

We have received evidence that the rateable values proposed for the small business rate relief scheme are too low for the scheme to be meaningful and recommend that the Government revise the thresholds in the light of our evidence.

Clause 71: Transitional relief

41. Clause 71 contains proposals for a self-financing transitional relief scheme when non-domestic rates are revalued. We received evidence that such schemes have not been successful in the past:

"The Partnership remembers the attempt by a previous Government to operate a similar non-statutory scheme in the 1990s, which was introduced in 1990-91 and abandoned in 1992-93, primarily because it attracted so much criticism from the business community."[53]

We heard that there is a risk that such mistakes will be repeated. Mr Travers of the London School of Economics and Political Science told us:

"Based on past experience there must be a risk that the businesses and other non-domestic ratepayers who should be achieving or having a lower bill and gaining out of the reform will find that they are not getting their full gain because they are paying towards the protection of losers. That could well lead to resentment which I think would put pressure on the Government to step in and then at some point simply pay them all the money that they are entitled to, and that is what they will feel they will want."[54]

The optimum design of any transitional scheme can only be decided on the basis of the results of a revaluation. It does not make sense for the Government to close off the option of Exchequer support even though in particular circumstances it may provide the 'least worst' option for managing the transition. We recommend the Government abandon its proposals in Clause 71 for a statutory requirement to make non-domestic rate transition schemes be self-financing.

51   The Regulator Impact Assessment stated, "When responding to the Green Paper, valuation professionals argued that gains from rate relief would often be shortlived because the majority of business premises are rented and the landlord would take account of any reduction in rates. However, property market is more complex than this analysis suggests. Landlords would take into account the ability of their tenant to pay the rent when negotiating an increase. The rate relief will be monitored to ensure that it benefits small businesses not landlords." Back

52   LGB23 Back

53   LGB15 Back

54   Q289-290 Back

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