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20 December 2023

No Festive Joy for Struggling High Street Businesses from Draft Budget


As part of the Welsh Government's budget spending plans for 2024/25, businesses such as pubs, shops, and restaurants will experience an increase in their business rates bills.

Business rates will increase by 5%, while firms in the retail, leisure and hospitality sectors will see reliefs falling from 75% to 40%

Property experts Gerald Eve has run the numbers announced related to business rates and found that the retail, leisure and hospitality sectors will see support cut by almost 50%, and all Welsh ratepayers will need to find an additional £52m to cover the announced 5% hike

Helen Edwards, Business Rates Partner in property expert Gerald Eve’s Cardiff office, said:

“This 5% increase means businesses across Wales will have to find an extra £52 million next year at a time when they are already under pressure from continuing inflation and the cost-of-living crisis.

“It is good to see the Welsh Government did not increase business rates in line with inflation of 6.7%, which would’ve seen an extra £68 million added to bills but it will still hurt ratepayers and stifle the economic growth we badly need.

“Welsh small businesses will be particularly hard hit, especially as their English counterparts will see a freeze to their rates bills. It means small firms in Wales have the highest commercial property tax in the UK.

“Those in the Retail, Hospitality and Leisure sectors will suffer hardest, with relief for them being cut from 75% to 40%, alongside the 5% annual rise. It leaves ratepayers in the hardest pressed sectors facing total support levels dropping from £140 million last year to just £78 million in 2024.

“This will cripple many small businesses and lead to further voids in the high street and an acceleration of pub closures. It also puts Welsh businesses at a significant disadvantage compared to their English counterparts where the 75% relief has been extended for a further year.”

The Welsh Government has announced the business rates multiplier used to calculate business rates will rise by 5% next year, typically rates rise in-line with September’s CPI measure of inflation. Each commercial property is given a Rateable Value (RV) based on factors including rents and property values. Business rates are calculated based on the RV with a rates bill of 0.562p for every pound of the RV. (eg. A rateable value of £100,000 would see a rates bill of £56,200.)

The retail, hospitality and leisure (RHL) support package has been in place for the past four years and will be extended for another 12 months. Previously, this was a 75% discount on rates bills for those in the RHL sectors up to a maximum of £110,000 – matching the same scheme in England.

From next year, the Welsh Government will reduce the discount to 40% at a cost of £78 million. At the UK Government Autumn Statement last month, Chancellor Jeremy Hunt announced the 75% discount would be extended for another 12 months at the same level.

Head of the WRC, Sara Jones, said:

“The below inflation cap on the business rates multiplier at 5 per cent is welcome acknowledgement of the catastrophic effect that this outdated tax has on retailers of all sizes. It’s encouraging that the Finance Minister has heard and acted on the retail industry’s representations. However, in spite of this supportive move, the Welsh business rate will move to a 25-year high and a fifth higher than at the start of the previous decade, and is higher than anywhere else in Great Britain.

“Whilst we are encouraged by the Finance Minister’s recognition of the challenges faced by the retail industry it is vital that decision makers use all levers available to reform the rates system and keep the cost of doing business down by removing unnecessary burden. Retail trading conditions remain challenging, and the near-term economic outlook is weak, it is clear that further support will be needed in the short to medium term to aid retailers with the cost crisis, helping them keep down prices for customers”.

Responding to the publication of Welsh Government’s Draft Budget, Ben Francis, Wales Policy Chair at FSB stated:

“High street businesses are currently hoping for a successful and busy Christmas period after many difficult years, with businesses continuing to struggle with increasing cost pressures alongside a drop in customer spending. In this climate, Welsh Government’s decision not to implement the same level of business rates support as similar businesses in England is a significant and regrettable blow and some businesses will undoubtedly face difficult choices in the months to come.

FSB had made the case to Welsh Government for a freeze in the business rates multiplier and the extension of the 75% rates relief as a recognition that retail, hospitality and leisure businesses are currently among the most impacted and require that level support to recover and aid wider economic recovery.

Indeed, in their Draft Budget, Welsh Government seem to acknowledge the need for further support by announcing a further ‘Future-proofing’ fund for smaller businesses in the sector. However, without detail on how that fund will be used and against what criteria support will be judged, it’s difficult to make an assessment as to what impact that money might have. As such it is important that this detail be provided to allow businesses to plan accordingly. While ‘future-proofing’ is important, ‘present-proofing’ is the priority of these businesses.

The realities facing our high streets are stark. More than 1 in 6 shops in Wales are vacant and retail sales in October fell by 2.7% on the year. With retail analysists suggesting the next quarter could be even tougher and 83.5% of our members reporting increasing costs, a hike in rates bills in April will place significant additional pressure on these businesses.

We recognise that Welsh Government has sought to extend the same amount of relief across a wider range of businesses and so have ‘spread the available jam’ more thinly. Many businesses will benefit from a cap on the business rate multiplier which is welcome. However, in the coming weeks as the scrutiny of this draft budget takes place, we will need to make an assessment as to whether this draft budget meets the scale of the mission to help support and recover our small business economy, or provides a map toward growing our economy in the future.

We recognise the difficult and unenviable choices facing the Minister and Welsh Government in this Draft Budget. However, as we have consistently argued, economic recovery – and prosperity to support our public services – will only come on the back of the health of the small business economy and a new plan for growing the economy.

Any prospective new First Minister needs to put this front and centre of the task facing their Welsh Government agenda”.

Hospitality Cymru executive director David Chapman said:

“While we appreciate the economic pressures the Welsh Government is under, there will be concern from businesses that relief has been reduced to 40%, from 75%, and that business rates will be increased across the board by 5%.

“It must be remembered that hospitality businesses already pay more than their fair share of business rates because the current system is out-of-date and punitive for bricks and mortar businesses.

“This reduced level of support now leaves businesses in Wales at a competitive disadvantage to businesses in England. Small businesses, in particular, will feel hard done by as their counterparts will see rates frozen across the border. A typical local pub or restaurant in Wales will, for example, be paying £6,400 more than one in England.

“It’s extremely disappointing that at the same time the Government is taking £16m worth of funding from the tourism budget. This is a strategically important sector in Wales and central to our culture – it needs investment and this sharp reduction in overall budget is worrying.

“At a time of intense economic challenges, this slashing of the tourism budget will do little to inspire long-term confidence in the sector, particularly alongside the looming introduction of a visitor levy and other policies that are impacting hard on the sector.”


 



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