Startup Advice

Small businesses face a huge rise in business rates next year

Oliver Jones

Research shows that over 56000 SMEs will have to pay 152 million pounds in extra tax next April.

Research by CVS shows that over 56,000 SMEs will have to pay £152 million in extra tax next April.

37,364 shops will see their business rates rise next April, with most of them facing massive increases between 10% and 14.99%.

Following a retail-crippling rise in inflation, which hit 3% this month (the highest since 2012) the extra tax may prove more than some businesses can bear.

Shops are struggling in the run-up to Christmas

Retail sales slumped in September, sending high streets across the UK deeper into a spiral of decay. The British Retail Consortium chief executive has warned that "Across the country, especially in economically deprived and vulnerable communities, the cost of failing to take action will likely be seen in yet more empty shops and gap-toothed High Streets".

Why is this happening?

Business rates are increased annually to scale with inflation. So September’s jump in the Retail Prices Index (or RPI, which measures inflation) will trigger a massive rate increase, unless the government steps in.

And there’s likely to be a double squeeze: interests rates are predicted to rise next month, as the Bank of England tries to dampen inflation. This will make it more expensive for businesses to borrow money.

Why is inflation so high?

The going theory is that Brexit is responsible for some of the inflation we’re seeing. Particularly when it comes to food, import prices have increased steadily since the referendum vote, as the pound wavers due to market uncertainty over the eventual outcome.

Even if the pound stabilises in the future, it will be too late to save businesses struggling with dampened demand in the run-up to Christmas.

Will the government step in?

Already, there have been calls for the government to freeze inflation-related rises and shield small businesses from the knock-on effects.

But government budgets are already stretched here: last April, the government provided what’s known as “transitional relief”, shielding businesses from rises in bills due to increases in property prices. What should have been a huge April increase will instead be phased in over 5 years, at a cost to the budget estimated at £3.6 billion.

With such a dent in the government’s pockets, it’s unclear whether further rate freezes will be affordable in the future, especially in a government keen to balance the budget without raising taxes, while facing an enormous political backlash over cuts to public spending.