Thursday, 9 September 2010

Overrated: New Welsh Business Rates relief scheme still less generous than in England and Scotland

Yesterday the Welsh Assembly Government let it be known that from 1 October 2010 until 30 September 2011, it would temporarily increase relief for Business Rates in Wales. According to the press release:

"Most business premises with a rateable value up to £6,000 will not pay any business rates and most of those with a rateable value between £6,001 and £12,000 will receive rate relief that will be reduced on a tapered basis. This means that business premises with a rateable value of £8,000 will get around 66% rate relief; whilst those with a rateable value of £10,000 will get around 33% relief."

Of course for small businesses in Wales this is very welcome news indeed - however in order to fully assess its value we need to understand how the previous relief scheme stacked up against other regions in the UK (as due to the devolved structure of the UK, England, Scotland and Wales all now have different Business Rates relief schemes).

All businesses make a contribution to local government services through what is known as 'Non Domestic Rates' (a.k.a. 'Business Rates') based on a valuation of their property by the Valuation Office Agency (VOA). The rates payable are calculated by multiplying the valuation of the property by a 'multiplier' determined each year by either the Welsh Assembly Government in Wales, the Communities and Local Government Department in England, and the Scottish Executive in Scotland. Accordingly, if a property used by a business in Wales has a rateable value of £20,000 for example, its business rates bill would be calculated by multiplying £20,000 by the Wales multiplier (40.9 pence in the pounds for 2010/11) giving the business a bill of £8,180 for 2010. However, in order to help small businesses in particular, each of the regions operate a relief scheme whereby eligible businesses are given discounts on their bill according to the rateable value of their property. Below is a summary and comparison I have made of the various business rates relief schemes as currently operated in England, Scotland and Wales:

Click to enlarge
As you can see, the business rates relief scheme in Wales has been far less generous towards smaller businesses than comparable schemes in England and, particularly, Scotland where since April this year all businesses with a rateable value of less than £10,000 have been lifted out of paying completely. To illustrate how much more comparable Welsh businesses have to pay than their English or Scottish counterparts, I have calculated the business rates payable for businesses in each of the three regions at five different bands:

As you can see, businesses in Wales with a rateable value of around £10,000 or less pay considerably more than comparable businesses in England, whilst the same businesses in Scotland pay nothing!

However, as I noted at the beginning of this post, the Welsh Assembly Government has now introduced an increased relief scheme for Wales which will lift all businesses with a rateable value less than £6,000 out of paying business rates at all - great, right? Well, up to a point, yes - but the fact is that the WAG scheme is identical in all particulars to the one announced (pdf) in England in July this year. And because WAG  has anyway set a slightly higher multiplier for Welsh businesses (40.9p compared to 40.7p in England and Scotland), Welsh businesses still have to pay more than their English and Scottish counterparts - as the following calculations based on the temporary relief scheme show:

Its worth noting that businesses in Scotland continue to pay less even when compared to the new temporary schemes introduced in England and Wales!

So, in conclusion, it would be curmudgeonly of me not to welcome the new levels of business relief in Wales - they are sorely needed. However it is essential that we recognise that small businesses in Wales are still at a competitive disadvantage compared to small businesses anywhere else in the UK. 

Small businesses are the backbone of the Welsh economy - they employ more people and contribute to their localities by complementing and supporting other local businesses. With an overlarge Public Sector in Wales it is essential that we do everything we can to grow our homegrown small businesses - however, as the above comparisons show, in the one area where the Welsh Assembly Government has complete freedom to create a competitive advantage for our small businesses, it has comprehensively failed. And our AM, Ieuan Wyn Jones, as Minister for Economy and Transport, has to take a large part of the responsibility for that.


Anonymous said...

Small businesses are certainly vital.

But it's not just the tax regime that works against us. Planning rules designed for built-up areas and applied nationally are a real headache. The lack of meaningful support from the endless numbers of government agencies (who will, thankfully, probably bite the dust now).

It needs a joined-up approach, but that is certainly not what we have at the moment.

The Red Flag said...

This is an extremly double-edged sword.

Yes it's good that this is happening, but it's only a short term plan and what happens if there is no significant local economic recovery by Sep 2011 (which there almost certainly won't be - in fact probably the opposite).

You will have small businesses that have probably taken out loans and overdrafts to start-up suddenly having to hugely increase their Gross Profit in order to increase theior Net Profits enough to pay the Rate. Then there's 'hidden' factors such as the coming rise in VAT and almost certainly interest rates that will force the required rise in Gross Profit just to stand still even higher.

In short you will I suspect see a flurry of start-ups followed 12 months later by a flurry of close-downs (accompanied by the tragic personal bankruptcies and lose of homes secured against business loans that usually go with them).

What's really needed is permanent lower business rates. I point you to Holyhead's main streets as an example. Look at the business rates for the shops. Bearing in mind the actual appalling condition of some of the buildings in comparison to the rents the landlords want is it any surprise at all that it's in the state it's in.

The Red Flag said...

my apologies for the line "Gross Profit in order to increase theior Net Profits enough to pay the Rate"

That should have been "Net profits enough tobe able to pay themselves"

Anonymous said...

It's no wonder there was a pic of Holyhead main street in the Mirror today under the headline "boarded up britain"