George Osborne fails to win over corporate critics on business rates

Package of reliefs and cap on rises not strong enough to boost companies’ cash flows and investment, the Chancellor is warned

The Chancellor failed to buy off all his critics over the impact of soaring business rates, despite announcing a package of reliefs in addition to the widely trailed promise to cap rises at just 2 per cent.

Firms in premises with rateable values of up to £50,000 will get discounts worth £1,000 off their bills for the next two years while businesses moving into vacant high street properties will benefit from a 50 per cent discount.

That is designed to help fill the growing stock of empty and boarded up shopfronts disfiguring high streets up and down Britain.

George Osborne also announced action to reduce a mounting backlog of appeals. But John Longworth, the director general of the British Chambers of Commerce, said while businesses would be pleased with the measures they were “not strong enough to boost companies’ cash flow and investment”.

“The Chancellor should have been bolder, freezing business rates entirely until this pernicious tax can be properly reformed,” he said.

And Simon Tivey from the accountants PricewaterhouseCooopers, said the vacant premises relief comes with a sting in the tail. He warned that it “has the potential to be unfair to existing businesses who may struggle to pay full rates.

“Unless it’s managed properly, unintended consequences are inevitable, with small businesses just moving shops to take advantage of the relief, creating a merry go round of rate relief relocations”.

That is a realistic prospect given that rates have been so punitive they now outstrip rent in some places. Rates are linked to rental values, but in have often failed to keep pace with the fact that rents have been falling.

This has fuelled mounting calls for action on the issue from both businesses and a rising number of Tory party activists. The influential ConservativeHome website had cutting rates as third on a wish list of members ahead of even such tractional hot-button issues as reducing fuel duty or cutting inheritance tax.

The British Retail Consortium, which is working with Ernst & Young to formulate alternatives, put a more positive spin on yesterday’s measures, however.

Helen Dickinson, its director-general, said: “The Chancellor has recognised that businesses are suffering and is right to listen to retailers’ concerns on business rates. The BRC has campaigned for a 2 per cent cap, and reform of the business rates system, and it is extremely welcome to hear it announced.

There were more doubts about plans to increase the levy on British banks by £200m next year, and by a further £200m in 2015 and thereafter. Bankers questioned whether this was a wise move when the City is already fighting to retain international banks with the threat that the UK could leave Europe. The Chancellor, who lifted the levy rate in his last Budget to 0.142 per cent of banks’ risk-weighted assets, is raising that by another 10 per cent to 0.156 per cent from January 2014, raising £2.7bn in 2014/15 and £2.9bn each year from 2015/16. PricewaterhouseCoopers’ partner Matthew Barling said: “Seven rate rises in three years sends a stark message regarding whether Britain really is open for banking business.”