Firms facing £22BN business rates hike
Plea for increase in Government support as companies brace for rise in tax toll AND soaring costs
COMPANIES face a £22 billion tax bombshell that will hamper the recovery and could tip struggling businesses over the edge.
Experts say the impact of a sudden increase in business rates will hit firms as they battle soaring costs and an uncertain future.
The rise, based on additional payment calculations for the next five years, is a result of record high inflation which is expected to peak in the autumn.
Business rates increases are pegged against September’s Consumer Prices Index, forecast to be as high as 11 per cent.
The rise would be the highest for decades and the single biggest jump by value in one year – around £3billion extra in the 12 months from next April and increasing in subsequent years to make up the mammoth figure.
Business rates are a tax on property which means it has traditionally been disproportionately borne by high street retail and leisure companies, many of which are already nervous about a slump in demand this winter as energy bills and food prices rocket.
Retailers have long argued that the system is archaic. They point out that a tax on property means rapidly growing online firms do not share the burden.
The calculations have been verified by business rates adviser Altus based on the sudden hike and then compound increases based on the Bank of England’s target inflation rate.
Alex Veitch, Director of Policy & Public Affairs for the British Chambers of Commerce, said: ‘Business rates hammer firms with significant costs before they turn over a single pound, irrespective of their economic health or circumstances. Businesses require vital support now to enable them to think and plan for the long term.’ The Government has already made alterations to the business rates system – changing the benchmark for increases from the Retail Prices Index to the Consumer Prices Index, which traditionally rises at a slightly slower rate – and reduced revaluations from every five to every three years.
It has also introduced relief for small firms and, more recently, those in sectors under most pressure from the pandemic, although much of that help will be scaled back by next year.
Veitch said: ‘To support longterm investment and success, the Government must do more to reduce the cost pressures that are holding back business growth.
‘While recent changes to the rates system – such as more frequent revaluations – will help, a significant amount of unfinished business still remains. We need to see a reform of the entire system that takes all types of businesses into account.’
Some firms in the hardest hit sectors may be helped by a revaluation of rates from April 1 next year. But the total tax take will still rise with inflation.
The owners of high street businesses, including restaurants and shops, are feeling increasingly fraught about their prospects for the autumn. One retail chief executive said last night: ‘We’ve had a good few months coming out of Covid, but the reality is that demand might all fall off a cliff pretty quickly in September when the summer is over, people come back from holiday and belts start tightening.
He added that if prices on basics such as food and energy bills continue to rise, then people would be forced to cut back on optional spending including fashion and eating out, which would have a ‘pretty ugly’ impact on high street businesses.
Robert Hayton, UK president at the real estate adviser Altus Group, said emergency measures to help firms with business rates during the pandemic were ‘a good start in reducing the overall rates burden’.
But he added that the Government needed to stop its ‘ridiculous policy’ of raking in more taxes as a consequence of inflation and concentrate instead on creating genuine growth. This, he said, would in turn boost local tax revenues and help fund services.’
According to the Confederation of British Industry, which represents the nation’s biggest firms, the UK has the highest property tax on firms across the G7 as a proportion of GDP.
This compares to a corporation tax rate which is the third lowest in the OECD and is currently set at 19 per cent.
The Treasury is under pressure to cancel a rise in corporation tax to 25 per cent from April, that would net it £17billion a year by 2026.
Tory leadership hopeful Liz Truss has promised to axe the corporation tax rise, as well as a National Insurance hike worth £12 billion – which she has
branded a mistake – and a £4.2 billion ‘green levy’ on energy bills. Liquidators hire staff as failing
firms set to soar
INSURER LV faces a fresh revolt after it refused to rule out another bonus for its disgraced boss.
The mutual organisation, which is trying to repair relations with members after a torrid nine months, this week revealed that boss Mark Hartigan was finally on his way out.
The former Army colonel lost the confidence of thousands of LV customers following his push for a deal with private equity. The customers ultimately voted down the controversial sale.
That did not stop Hartigan scooping a £511,000 bonus – dubbed a ‘reward for failure’ by MPs and campaigners – on top of his £435,000 salary in 2021.
Now LV has declined to rule out handing him another bonus for the current financial year.
LV’s policyholders are threatening to rebel at the firm’s annual meeting, when they will be asked to approve last year’s pay report.
One LV member, 75-year-old Donald Hare, said of Hartigan: ‘He’s got a cheek. I would vote against him getting that amount [of pay]. I think he’s ripped all the members off. He’s taking us all for a ride.’
Hartigan’s previous bonus was awarded in a year which saw LV spend more than £30 million of members’ money on the attempt to sell itself to private equity firm Bain Capital last year.
He resigned in the face of a noconfidence vote after more than 1,000 LV members wrote to The Mail on Sunday and our sister paper the Daily Mail saying they no longer supported him. Hartigan plans to stay on in the post until a successor is found. An LV spokesman said he would continue to be paid in full.
Clarissa Johnson, a retired lecturer, said: ‘I’m not happy about the way bonuses have been paid.’
She added that it was ‘disappointing’ that LV would not disclose whether it would offer Hartigan another reward for this year.
Johnson added: ‘We still haven’t had any explanation for what happened which marries up with what we have learned about the deal. I don’t feel the whole thing is over yet.’ The 179-year-old firm – founded as Liverpool Victoria to help the city’s poor pay for a decent burial – has long prided itself on being a mutual. But LV’s 1.2million members were urged by Hartigan and then-chairman Alan Cook to approve a takeover by Bain.
This would have meant LV losing its treasured mutual status, so it would no longer be owned by its customers and would instead be run for the benefit of a profithungry investor.
Hartigan and Cook claimed LV desperately needed cash to modernise. They claimed that Bain was the only buyer willing to put up the money.
But then it emerged that Hartigan could receive a hefty financial windfall and potentially a stake in the company.
It was later discovered that Royal London, a fellow mutual, had made a similar offer for LV and had even offered to keep the firm’s member-owned structure, but it was turned away.
Eventually LV’s customers voted the Bain deal down in December. The business, now overseen by new chairman Simon Moore, has not yet revealed when it will hold this year’s annual meeting, but it is expected in the autumn. The vote on the remuneration report will not be binding – so Hartigan cannot be forced to give the cash back.
Hare added: ‘It’s a mutual. Surely if the majority of members vote against the pay then the directors should not be giving it out.’