A likely rise in business rates of some £1 billion is set to pile on the pressure for firms, many of which are already struggling because of the ongoing effects of the pandemic. The rise looks set to be introduced as a measure to deal with rising inflation and is due to start in the new financial year on 1 April – an announcement is expected in the forthcoming Autumn Budget.

Why will business rates rise in 2022?

Figures from the Office for National Statistics, the Consumer Price Index show that inflation was 3.1% in September and this reading is used by the government to determine any increase to business rates.

According to consultant, Altus Group, the 3.1% reading means an increase of £1.04 billion could be imposed for businesses across England.

The retail, hospitality, and leisure sectors have had a business rates payment holiday since the start of the pandemic. However, this has been tapered off in recent months and will be removed entirely by the start of the new financial year.

Shops, which have been badly affected by the pandemic and because of the rise of online retail, are expected to be hit with more than £251 million in extra payments

Does the business rates regime need to change?

Meanwhile, industry leaders have called on the government to overhaul the business rates regime as a matter of urgency.

Robert Hayton, UK president of Altus, said: “Clients tell us that the rates burden act as a disincentive to invest. The Chancellor must use the Budget to set stringent targets for the clearance of tens of thousands of outstanding challenges to facilitate the return of years of overpayments whilst also ending the ridiculous policy of increasing upwards the tax rates by inflation which are now at an unsustainable level.”

Helen Dickinson, chief executive of the British Retail Consortium, said the rise would “sound alarm bells” for many members. “This reinforces the need for at least a 30% cut in rates bills for retailers next year to bridge the gap between current reliefs and lower bills when new valuations kick in in 2023.”

She added: “Four-in-five retailers say they are likely or certain to close some of their stores if business rates are not reformed, threatening hundreds of thousands of jobs and shops across the UK. In addition to next year’s relief,  the government must reduce the burden of this broken tax in its upcoming review, and support investment and growth.”

The Confederation of British Industry and 41 other trade groups are also calling for major changes to the business rates regime.

Business rates holding back UK recovery

The trade groups, which represent more than 260,000 businesses and nine million employees between them, have said failing to act will hold back businesses from recovery. They also said that unaffordable business rates will act as a disincentive for green investment.

Under the current system, a company investing in its physical premises by installing solar panels or a heat pump could add to the value its premises, raising its rateable value and therefore having to pay more tax.

Rain Newton-Smith, the CBI’s chief economist, said the Chancellor could not afford to delay taking action on business rates. “If the government is serious about achieving its net-zero ambitions, kicking reforms further into the long grass cannot be the answer.”Simon Renshaw, director with Company Debt, comments: “This steep rise is bad news for many businesses, in particular the more vulnerable retail and hospitality sectors. Industry groups are lobbying the government hard and who can blame them? The UK’s rating regime is higher than the G7 average and is also out of sync with the country’s stated ambitions to invest in green projects and all the related benefits this would bring. It will be interesting to hear if there is some new thinking as if not, this tax hike could well result in yet more insolvencies.”