Consultation outcome

Business Rates Revaluation 2023: Consultation on the transitional arrangements – summary of responses and government response

Updated 17 November 2022

Introduction

1. From 1 April 2023, the rateable values of all non-domestic properties in England will be updated to reflect the property market as at 1 April 2021. This will ensure business rates bills are fairly distributed across all non-domestic properties and reflect changes in market conditions since 2015.

2. A package of support worth £13.6 billion over the next 5 years has been announced to support business at the 2023 revaluation. This includes freezing the business rates multipliers at 49.9p and 51.2p in 2023-24, and targeted support for small businesses and the high street.

3. On 30 May 2022 the government published a consultation seeking views on the transitional arrangements to be adopted at the 2023 revaluation. The consultation closed on 25 July. This publication summarises the responses to that consultation and sets out the government’s response.

2023 Transitional Relief scheme

4. As with previous revaluations, the government will introduce a Transitional Relief (TR) scheme to support ratepayers facing large changes in their liabilities as they adjust to their new bills.

5. The government has listened to stakeholders, including during this consultation, and is accordingly delivering significant reform to Transitional Relief by permanently removing the requirement for revenue neutral transitional arrangements. The 2023 scheme will therefore not fund upwards transitional relief (‘upwards caps’) by restricting falls in bills to raise revenue (‘downwards caps’). This will make the business rates system fairer and more responsive, delivering on a key stakeholder ask to allow ratepayers whose properties see a fall in rateable value to immediately see the full benefit of the revaluation reflected in their bills.

6. Instead, the government will Exchequer fund upwards caps for the 2023 TR scheme at a cost of £1.6 billion, a format which has been the preferred option of the majority of respondents to this consultation. In addition, the 2023 upwards caps are significantly more generous than in 2017 to support ratepayers across England as they transition to their new bills:

Upwards Caps	2023/24	2024/25*	2025/26*
Small (RV up to £20k or £28k in London)	5%	10%	25%
Medium (RV between £20k to £100k)	15%	25%	40%
Large (RV greater than £100k)	30%	40%	55%

*Year 2 and 3 caps are before inflation

Note: these are year on year caps on increases. Caps are applied before changes in other reliefs and supplements such as the 1.3p supplement paid by those on the national multiplier and the premium paid in the City of London.

7. The Year 1 upwards caps for small properties will be set at 5%, recognising that the smallest ratepayers may be least able to manage large bill increases. This means that over 900,000 small properties will not see an increase of more than 5% next year as a result of increased rateable value.

8. The government has also listened to stakeholder concerns that previous schemes have not sufficiently supported ratepayers occupying large properties. Therefore, the Year 1 cap will be set at 30%, providing significantly more generous support than in 2017.

9. In recognition of the difficult economic circumstances faced by businesses in 2023, there will be no adjustment to the caps in Year 1 to account for inflation. Upwards caps in Year 2 and 3 will then adjust in line with any uprating to the multiplier to ensure that TR is appropriately targeted at ratepayers facing bill increases due to higher rateable values.

10. The government is delivering significant reform to Transitional Relief by removing the requirement for revenue neutral transitional arrangements, so that the cost of upwards caps is met by the government instead of business. Recognising the wider economic challenges faced by businesses, the 2023 scheme is providing more generous support than previous Transitional Relief schemes. However, in future the government will need to consider the correct balance between cost to the Exchequer and support to ratepayers. As more frequent revaluations from 2023 increase the responsiveness of the system, future TR schemes will be more targeted, only supporting ratepayers facing the largest bill increases. The government will bring forward primary legislation in due course to implement these changes.

11. Given that upwards caps have been consistently retained for consecutive schemes and, in general, it is only the level of support provided that will vary, the government will no longer consult on the scope of future TR schemes as a matter of course. Future TR schemes will be developed taking into account revaluation outcomes to ensure that the support provided continues to be effectively targeted at ratepayers facing the largest bill increases.

Overview of responses

A total of 102 responses to the Transitional Relief consultation were received, comprising:

Respondent type	Number of responses
Agents	16
Business representative organisations	25
Local authorities	16
Large businesses	44
Other	1
Total	102

12. The majority of respondents (77%) support upwards caps to protect ratepayers from large bill increases at the 2023 revaluation, with many citing the importance of this support in providing certainty to businesses. However, hardly any respondents called for a TR scheme funded by downwards caps; only local authorities expressed any support for this funding mechanism.

13. The most popular suggestion was for the government to remove the revenue neutrality requirement from the scheme and, instead, fund upwards caps from general taxation. Some respondents suggested that if this was not possible, the scheme should be funded via a multiplier supplement so that decreases in bills could still flow through immediately. Many stakeholders believed that ratepayers seeing falls in rateable value are not typically in a position to help fund a TR scheme, as these falls are likely due to worsening economic positions.

14. Several respondents also called for no TR scheme at all in 2023 or suggested that with more frequent revaluations, there would be reduced need for transitional relief at future revaluations.

Annex A: Detailed analysis of responses

Question 1: How do you believe the government should strike the balance in the 2023 transitional arrangements between supporting ratepayers facing increases to their bills and allowing the effect of the revaluation to flow through into bills?

Respondents were spilt, with 44% requesting a simplified scheme where final bills were reached by the end of the list; either through equal ‘steps’ or by providing less generous caps in the final years of the scheme. This would protect ratepayers in the first year where uncertainty is highest. Several respondents anticipating large bill increases requested that TR caps continue beyond the life of a single list.

Some stakeholders (33%) suggested that a TR scheme should operate for less than the life of a list or that TR would be less relevant once 3-yearly revaluations are in place. The majority of respondents favoured decreases in bills flowing through immediately (53%) by scrapping downwards caps.

Question 2: What format of transitional relief do you think should be provided for the 2023 revaluation?

More than a third of respondents (35%) commented on the need for certainty in bills, and accordingly called for a scheme which prevented large increases in the first year. There was a general assumption that once the revaluation outcomes are published and time allowed for business planning, businesses could accommodate larger bill increases in later years.

Agents in particular requested a simpler scheme than the 2017 transitional arrangements, but simplification was mentioned more widely across other respondent groups. Many continued to advocate for a ‘steps’ scheme (to ensure all ratepayers reach their true liability by Year 3 of the scheme). However, large businesses generally favoured limited bill increases in the first year to provide certainty and were less favourable of a ‘steps’ scheme (only 22% of large businesses expressed interest in this format).

A minority (30%) of respondents wanted no TR scheme at all, given the move to more frequent revaluations. This was often justified on the basis that 3-yearly revaluations should lead naturally to smaller bill changes at revaluation.

Question 3: Do you think that we should continue to provide assurances through transitional relief that bills will not rise by more than a set percentage due to the revaluation?

The majority (77%) of responses called for continued protection against large bill increases via upwards caps. Only those who wanted no TR scheme at all responded negatively to this question. Respondents did not come to a consensus on the exact format protection should take, but reasons in favour were centred around supporting businesses as they adapt to increasing bills to provide certainty.

Retailers had particularly cohesive views, with strong support for the continuation of protections against bill increases (90% of retail responses) as well as the removal of downwards caps (80% of retail responses).

Question 4: Do you think we should provide different caps for different sizes of properties?

Not all respondents gave an opinion on this issue. Around 50% of all respondents wanted upwards caps which were identical regardless of property size and only 20% of responses expressed a strong preference for caps differentiated by property size. It should be noted that no small business responded to this consultation, meaning views on this question may be unrepresentative.

Only 14% of large businesses and 27% of business representative organisations suggested there should be different caps based on property size. A common argument was that property size is a poor indicator of ability to manage large bill increases and that large businesses needed greater support in Year 1 than was provided by the 42% cap set in 2017.

Question 5: What are your views on how we should fund transitional relief within the requirement for the government to have regard to the object of securing (so far as practicable) that the scheme is revenue neutral over its life?

The majority of respondents (54%) to this question did not feel that a legislative requirement for revenue neutrality was reasonable and called for the scheme to be funded by general taxation. A close second preferred option (45%), should central government funding be impossible, was that upwards caps be funded through a small supplement to the multiplier; some respondents specified this should only be levied on large properties. Only local authorities requested that downwards caps be retained.

Question 6: Do you have any other views on the format of the transitional arrangements for the 2023 revaluation?

A wide variety of responses were given in this section. Some suggestions included: simplification of Transitional Relief schemes, earlier sight of bills and the design of 2023 TR scheme, and a permanent TR scheme which could be replicated at each revaluation unchanged.

Several respondents used this question to address wider business rates policy and reform, which is beyond the scope of this consultation.