The Chancellor has given an eleventh hour reprieve from the 5% rise in business rates due to be implemented in April , which many had claimed was a step too far given that inflation is now zero.
After intense pressure from local councils and major retailers the chancellor has agreed to phase the planned 5% increase over three years. It will cost the Treasury £600m.
Alistair 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,"
Business rates are uprated each year in line with the RPI measure of inflation but traditionally using the rate as at September in the previous year (see earlier story). Inflation was then 5% but it has since collapsed over the past six months. Cpmpanies will face a 2% increase as of tomorrow, and will be allowed to defer the rest over the next three years.
But the head of policy at the British Chambers of Commerce - Kevin Hoctor - said even the phased increase would still hit businesses hard. "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," he said. "We have said that it's not an exaggeration to say that some companies could go bust under the strain."
But the head of economic policy at the Engineering Employers Federation - Lee Hopley - said the phasing would be helpful for companies facing a painful cash squeeze. "The last thing businesses needed were higher taxes as they struggled to cut costs and this decision will allow companies to defer part of their tax bill, giving breathing space until their bottom lines recover."
Making such a last-minute change to tax policy just three weeks before the Chancellor is due to deliver his budget and after UBR bills have already been posted by local councils underlines the intense pressures facing the Treasury to help businesses to cope with the recession.
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