The government has performed a screeching U-turn over new reforms to the business rates system by dropping unpopular proposals for the process for appealing business rates.
The proposed appeals regulations would have denied businesses £2.5bn worth of rebates over the next five years, according to estimates by ratings specialists CVS.
On Wednesday, communities secretary Sajid Javid quietly met with ratings specialists after chancellor Philip Hammond’s Budget speech to inform them of the change of direction following the threat of legal challenge from 13 business groups, including the Confederation of British Industry (CBI) and the Federation of Small Businesses (FSB).
The Department for Communities and Local Government (DCLG)’s draft regulation had stipulated that businesses appealing their rate valuation would be denied a rebate on their tax bill if the government’s miscalculation fell within a “reasonable margin” of error.
But in the final document, DCLG made a significant concession to the business community on how business rates are appealed, removing the “reasonable professional judgement” provision.
John Webber, head of ratings at Colliers International, hailed the amendment as a “victory for common sense” and said the provision would have “wiped out the majority of the appeals with the stroke of a pen”. “It was never going to be workable,” Webber added. “But thankfully someone has seen sense.”
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Mark Rigby, chief executive of CVS, said he was “delighted” that Javid had changed his position after “intense lobbying” from businesses.
He added: “The secretary of state was once again fully committed to ensuring all firms pay fair and accurate tax, without rebates being curtailed, and he should be commended for taking on board the concerns of business.”
A DCLG spokesperson said the department had listened to the concerns of ratepayers, adding: “The change is designed to ensure common sense in the system, and to make clear that there is no arbitrary ‘margin of error’ being applied.”
Rates have been a political hot potato in recent months because of steep hikes faced by many businesses from April following the first revaluation in seven years.
In a bid to cushion the blow, Hammond this week announced a £300m business rates relief fund that will be distributed to local authorities over four years, and an extra £110m set aside to help small businesses coming out of business rates relief.