pounds 30m tax break for Harrods

HARRODS, OWNED by Mohammed Al Fayed, could shave millions of pounds off its rates bill if ministers decide to extend a scheme that critics deride as manifestly unfair.

Businesses in booming parts of Britain, such as Knightsbridge, could face increased tax bills of more than pounds 1bn a year unless the proposals are approved next month. But experts are already criticising the scheme, saying firms in deprived areas will miss out.

The savings will come from an extension to the "transitional phasing" on business rate bills. In 1990, when the Tory government introduced a national business rate, the ratable value for some business properties rocketed, with Harrods going from pounds 900,000 to pounds 13m. To compensate, the government capped annual business rate increases, and decreases, at an average 10 per cent. Since ratable values in some areas have risen faster than that, some businesses are still not paying the full amount.

The scheme was to end next year, but ministers have asked officials to draw up options with a view to extending it.

The distortions are highlighted by figures obtained by The Independent on Sunday. These reveal Harrods' saving pounds 30m since 1990. It will save millions more if phasing is extended beyond 2000, as will pub chains, cinema operators and out-of-town retailers.

The losers will be companies located in places where values have fallen. These include industrial complexes, town centres hammered by out-of-town malls, and areas receiving grant aid such as rural Wales and former mining communities, said Paul Danks, head of rating at Fuller Peiser, a chartered surveyor. Without phasing, they would get significant cuts in their rate bills.

"Transition artificially distorts the tax system," said Charles Partridge, head of rating at the Royal Institution of Chartered Surveyors. "It benefits those most able to afford to pay more while penalising those who can't."

The Local Government minister, Hilary Armstrong, has asked officials to map out options to extend transitional phasing of business rates, bills but the Treasury is understood to be reluctant to fund all of the relief.