Rachel Reeves will explore “fixing” cliff-edge business rates, which make small businesses pay higher taxes upon opening a second property, as part of reforms she has described as “pro-growth.”
The Chancellor is reviewing changes to the small business rates relief, with a decision expected to be announced at the Autumn Budget on 26 November.
Treasury officials pointed to concerns small street shops faced “sudden jumps” in taxes when opening a new property.
The government is set to consider moving “slab” business rates, where a single multiplier is paid on the full rateable value of properties, to a “slice-based” marginal tax rate system, where bands are taxed at increasing rates.
Rachel Reeves said: “Our economy isn’t broken, but it does feel stuck. That’s why growth is our number one mission.
“We want to see thriving high streets and small businesses investing in their future, not held back by outdated rules or strangled by red tape.“
“Tax reforms such as tackling cliff-edges in business rates and making reliefs fairer are vital to driving growth.
“We want to help small businesses expand to new premises and building an economy that works for, and rewards working people.”
Firms face lower tax rates for retail, hospitality and leisure properties with a rateable value of less than £500,00 while those above the threshold pay at a rate determined by a higher multiplier.
The new rates for businesses will be set at this year’s Autumn Budget but Reeves has indicated that reliefs for businesses with properties at a rateable value of less £15,000 could be changed.
Rachel Reeves’ move to win businesses over
Whitehall officials noted that tax advisers and real estate agents saw the relief for small businesses as an area in need of reform, as it blocked growth and investment.
The government is considering calls from industry for the rateable value threshold to be increased and for a single property condition on the relief to be removed.
Calls for an extension to the 12-month improvement relief for property improvements are also set to be acted upon, while the Treasury noted that some had demanded a reduction in reliefs for business owners when properties go empty, given fears it was used for tax avoidance.
The government has ruled out changing the frequency at which it revalues properties. The next round is due in April next year, leaving company owners fearing that business rates will spike.
In a foreword to an interim report on business rates, newly-appointed tax minister Dan Tomlinson said high street shops were a “focal point for communities”.
A number of business groups welcomed Reeves’ intention to reform business rates, with UKHospitality chair Kate Nicholls – who has opposed Labour’s hike to employers’ national insurance contributions – said moves to adjust the system were “positive”.
Louise Hellem, the Confederation of British Industry (CBI)’s chief economist, said: “The government is right to prioritise tackling cliff-edges, which have long acted as a brake on investment and growth across the economy.”
“We particularly welcome both the commitment to explore a slice-based system and options for improving investment incentives, such as enhancing improvement relief as put forward by CBI members.”
The Federation of Small Businesses (FSB) also supported changed but the British Retail Consortium (BRC), which represents the likes of Tesco and Boots, said it remained cautious about the plans until details emerge in the Autumn Budget.
“For retail businesses, the most pressing question is how the government’s plan for a permanent business rates reduction for retail, hospitality and leisure (RHL) premises will be implemented,” Helen Dickinson, chief executive at the British Retail Consortium, said.
“Until we get clarity on these changes, which isn’t expected until the Budget, many local investments in jobs and stores are being held back.”