By Alex Klaushofer
Councils in England are warning that the rise in business rates on April 1 could tip recession-hit businesses into bankruptcy.
In more than half of local authority areas – 56% – local firms are already struggling to pay their business rates, according to the Local Government Association. This situation is set to worsen with the ending of the transitional rate relief scheme on April 1, which will mean higher bills.
The LGA is calling on the government to extend the relief programme to protect businesses in danger of going under. It also wants tax breaks to be overhauled to ensure small businesses receive all rates relief due to them.
The transitional relief scheme was set up in the 1990s to phase in the sometimes extreme rate rises caused by the five-yearly business property revaluations. For the 2005 revaluation, the government decided to cut the relief scheme from five to four years.
Guildford Borough Council has 272 businesses that face increases of more than 5%. It has been writing to those with the biggest rises to warn them before the bills drop on to their mats. One company, which charges rent for the use of its land, faces an increase of 2,911% – a rise from £567 to £17,096.
A local day nursery has also been hit by an increase of 133%. ‘I don’t know how their business model is going to sustain a 133% increase,’ said Guildford’s head of revenue and payments, Steve White.
‘If they fold, 150 families will be affected in terms of day care.’
Consultation with colleagues in other councils via CIPFA’s benefits and revenues network revealed similarly high jumps across the country, he said.
‘It’s a national problem – a big issue for councils to cope with as we’re striving to keep businesses going.’
Beyond checking that businesses have the right rateable value or are eligible for small business relief, councils can do little to help those in trouble other than by offering hardship grants.
LGA chair Margaret Eaton said: ‘It’s clear that a decision about ending this relief was made whilst the economy was still booming and it was thought that businesses would be able to cope. In the new environment, it’s just not realistic to expect many businesses to deal with this sharp rise in their bills.’
But a response from the Department for Communities and Local Government suggested that a change of heart from central government was unlikely.
‘They have had four years to plan for the transition to full rates and have received considerable benefit from the transitional relief scheme during this period,’ a spokesman said.
‘It is only fair that they should pay their full rates bill in the final year before the 2010 revaluation of business property.’
Transitional relief would be provided again from 2010/11 after the 2010 revaluation, he added.
