Monday 20 February 2017 6:03 pm

Business rates fight intensifies as government accused of misleading MPs

The row over business rates is heating up with businesses hitting back at the government's claim that they will receive a tax cut.

The government has retaliated at the business groups that are demanding reform to business rates, saying that three in four businesses will receive a rates cut, or won't be affected.

Read more: The business rates backlash continues… this time Sainsbury's speaks out

But property consultancy Daniel Watney has said the government is misleading MPs with its claims.

Business rates, which are tied to the rental value of a property, have been revaluated for the first time in seven years. Taxes will sky-rocket for many businesses in London from 1 April, because rents have climbed so sharply over the intervening period.

Daniel Watney's analysis of 5,000 properties rated over £100,000 shows that of the properties receiving a cut in business rates, one in five won't see the full value of the cut at all before the next revaluation.

Read more: 13 groups have joined forces to fight the government's business rates plans

Half of the properties analysed receiving the biggest fall in rates won't get a full rate cut for another three years. Debbie Warwick, head of ratings at Daniel Watney, said this meant the value of the cut might be cancelled out by inflation and the fall in the value of sterling.

She added:

When those seeing rates cuts and those seeing rates increases both lose out from a transitional regime, it is clearly in need of reform.

A spokesperson for the department of communities and local government said: "There is a taper on the decrease. It’s absolutely not misleading what we’ve said.

"Just as there are caps on the increases on  business rates, likewise there are cuts on business decreasing."

The last business rates revaluation was just before the global financial crisis, meaning rates were set when rents were at a peak, and businesses were forced to pay this level of tax throughout the following recession.

Read more: Culture shock: How London's theatres will be squeezed by business rate hike

The campaigners have raised concerns that these businesses are not immediately receiving the full value of the rates cut they are in line for.

Meanwhile, businesses facing rate rises will be saddled with a 42 per cent hike this year. Previously, rate rises were capped at 12.5 per cent in the first year.

Should the Welsh system be used as a model?

There has been a suggestion that the government could adopt Wales' transitional relief system, which offers more generous rates cuts for businesses in the first year, and less onerous rises for companies facing a rates rise.

In Wales, rate rises for those businesses which no longer qualify for small business relief are capped at 25 per cent in the first year.

The new taxes will be particularly detrimental for retailers with substantial property portfolios. These businesses are also navigating higher costs coming from rises in the national living wage, and the increased cost of goods due to sterling's slide.