Chancellor's business rate cap unravels in small print

Businesses will only save enough money to buy an extra pint of milk each week as a result of the Chancellor’s decision to cap business rate rises at 2 per cent next year, according to experts.

The tax on all commercial premises is supposed to go up in line with inflation, as measured by the retail prices index – currently, 2.3 per cent. George Osborne said he would cap this at 2 per cent to help smaller businesses, but that only means a saving of around £50 a year.

Analysts also pointed out that the vast majority of businesses will still pay more than the cap because of a supplementary tax aimed at bigger businesses. And they warned that while the Government has promised a full review of the structure of business rates, which work like council tax and are paid by every commercial property in the country, ministers were still ignoring the biggest problem: that the property valuations used to set the tax are only made every five years.

Jerry Schurder, head of rates at the property consultant Gerald Eve, explained this meant most valuations were totally out of date and needed to take place annually.

He said: “This was completely ignored at the Autumn Statement… Time after time businesses have been calling for more regular revaluations. Many are getting weary at spending time and money resubmitting the same advice.”

Another tweak to the rules, hidden in the small print, is that any business wishing to appeal against their bill must do so by 31 March – otherwise they will not receive a refund on backdated overpayments.

Mark Rigby, chief executive at the rates specialist CVS, called this a “stealth grab” that could leave businesses out of pocket by £1bn. “This is a technocratic reform which takes advantage of businesses’ lack of understanding of the complex rates system.”

The deadline for appeals is also likely to lead to the Valuation Office Agency becoming overwhelmed, at a time when it is under pressure to clear a backlog of appeals. The Independent has previously revealed it will miss its targets.

Some businesses will benefit from the Chancellor’s reform. For example, there will be a £1,500-a-year discount for premises with a rental value under £50,000.

However, the rates expert Paul Turner-Mitchell said 70 per cent of businesses will have to pay more than the cap. “Offering a 2 per cent cap is purely headline grabbing and actually isn’t helpful to anyone,” he said. “The underlying problems are far deeper and the whole system needs changing because it is simply too complicated.”

Alan Watson, a partner at the ratings and property firm Rapleys, agreed, saying: “Against annual bills which run into the thousands of pounds, this would clearly qualify as the proverbial peanuts in terms of relief.”