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Business rates rise to be staggered over three years

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Businesses have been given a reprieve from the 5 per cent rates rise due this month.

The Chancellor, Alistair Darling announced that the increase in business rates is still to go ahead but will be phased in over a three-year period.

Rates will rise by 2 per cent this year, the remaining 3 per cent to be introduced over the following two years.

The move will also allow those firms affected by the end of the 2005 transitional relief scheme to spread payment of the increase in their bills over three years.

Mr Darling said: “The government recognises that businesses need help now to ease their cash flow at a time when money is very tight. This measure will help businesses to smooth their rates payments over the next three years.”

The Chancellor added: “I believe this will provide real and genuine help for businesses in this country. Indeed, 1.6 million properties will gain from this and it will defer about £600 million.”

Business rates rise each April in line with the Retail Prices Index as it stood in the previous September.

The latest 5 per cent hike, however, was based on an inflation rate that, in the intervening six months, has shrunk to zero.

The majority of independent economists expect RPI inflation to turn negative at the end of 2009. If RPI is negative, the next up-rating of business rates would reduce total business rates in cash terms in 2010-11.

But the government, after a campaign by business groups to get the rise either frozen or reduced, has decided to act now to help ease firms’ cash flow problems.

The relief, though, is not going to be instant. The Treasury said that the government will be bringing the necessary regulations into effect as soon as possible but that this won’t be probably until the summer.

Once the changes are in place, local authorities will then write to businesses providing them with the option of a revised schedule of payments for 2009-10 bills.

In the meantime, businesses will need to pay the rates bills they have already received.

The announcement so far only applies to England, although the government said it would be engaging with “the Scottish, Welsh and Northern Ireland administrations to clarify the situation for ratepayers in respect of business property in Scotland, Wales and Northern Ireland”.

John Wright, chairman of the Federation of Small Businesses (FSB), said: “This is good news for small businesses, as far as it goes.”

Richard Lambert, the CBI’s director-general, also offered the measure a cautious welcome: “Although this change will not reduce the tax burden on companies, it will allow them to pay the 5 per cent increase over three years instead of one.

“This is a step in the right direction, helping companies at a critical time by improving cash flow. We are also pleased that the change will defer increases due to transitional rate relief, which had threatened some companies at a difficult time.”

But Kevin Hoctor, head of policy at the British Chambers of Commerce, said that the measure would still leave businesses with increased cost burdens.

Mr Hoctor commented: “We asked the government to freeze the business rate increase because RPI inflation is at zero per cent. Staggering the cost is still an increase and it will be complex. Businesses will still be hit at a time when they have restricted cash-flow and growth.

“This doesn’t make any sense in an economic downturn. It will be business that drives the UK out of this recession so I would urge government to find a way of supporting firms with these extra costs.”