Research and Library Services
Briefing Paper
07/09/07
Background Briefing: Small Business Rate Relief (SBRR) Scheme
Jodie Carson
Research Officer
Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.
Introduction
Northern Ireland (NI) is the only part of the UK which does not offer small businesses relief from their rate liability 1. Other regions offer Small Business Rate Relief (SBRR), to alleviate what is recognised as an otherwise disproportionate rate burden on small companies. This paper outlines the schemes in operation in the UK and the case put forward for a similar relief in NI.
Background
Proposals for a Small Business Rate Relief (SBRR) Scheme in Northern Ireland were outlined in a policy paper published in March 2005. The case was examined and consulted upon as part of the Review of Rating Policy. Direct rule Ministers concluded that there was, as yet, insufficient evidence from the UK schemes to enable an effective assessment of the case for SBRR in NI. It was also suggested that NI did not have the required scale of big business to enable rate redistribution. The scheme was therefore not pursued at that time; a subsequent review was scheduled for 2007. The Economic Research Institute of Northern Ireland was commissioned in this respect and is due to report by December 2007.
Rationale for Small Business Rates Relief
The SBRR scheme has been introduced in the UK to redistribute the rate burden away from the small company. In the absence of the scheme, small businesses were considered to be disproportionately burdened by their rate liability. Evidence had indicated that rates accounted for a considerably larger proportion of small companies’ profits; in some cases up to 35% 2. Given the relative importance of small business in the UK, (it is generally accepted as the ‘backbone’ of British industry), SBRR was introduced.
UK Experience
Scotland
SBRR was introduced in Scotland in April 2003. Non-domestic subjects with a rateable value of £11,500 or less are eligible for a discount of between 5% and 50% on the rate poundage. The rate relief for eligible subjects is as follows 3:
Total Rateable value of all non-domestic subjects occupied
Less than £3,500 |
50% |
£3,500 - £4,500 |
40% |
£4,500 - £5,750 |
30% |
£5,750 - £7,000 |
20% |
£7,000 - £8,000 |
10% |
£8,000 +; or eligible for other (non-discretionary relief) |
5% |
England
An SBRR scheme was introduced in England in April 2005. Eligible businesses with rateable values of below £5,000 are entitled to 50% rate relief on their liability. The relief decreases on a sliding scale by 1% for every £100 of rateable value over £5,000, up to £10,000. The relief is available to ratepayers with either:
-
one property, or
-
one main property and other additional properties 4
Wales
Introduced in April 2007, the Welsh system replaced the Rural Rate Relief Scheme. It provided relief, as follows:
-
50% for businesses with a rateable value of £2,000 or less;
- 25% for businesses with a rateable value of between £2,001 and £5,000;
- 100% for post offices with a rateable value of £9,000 or less and
- 50% for post offices with a rateable value of between £9,001 and £12,000.
Lessons to be Learned
A number of lessons might be deduced from the UK experiences of SBRR, as follows:
- It has been argued that the SBRR scheme should be changed to account for business size rather than value, as is currently the case 5;
- There were issues with the take-up rate of SBRR in England. In 2006, fewer than 50% of the eligible companies applied for the relief 6. The scheme was subsequently amended to reduce the application requirement for businesses from an annual one to a five-yearly arrangement.
The Case for Northern Ireland
Despite being the only UK region not to offer rate relief to small businesses, NI is the most dependent upon the small company. Indigenous small companies make up 98% of NI business. Furthermore, the cost of doing business in NI has increased considerably in recent years; a factor which will have only rendered small companies more vulnerable 7. It might therefore be argued that the small business should be protected; alleviating a disproportionate rate burden is one such approach.
‘Rates Reinvestment Fund’
The Federation of Small Businesses (FSB) has proposed a unique type of SBRR scheme, entitled the ‘Rates Reinvestment Fund’. The differentiating aspect of this scheme would be its reinvestment nature; 50% rate relief for qualifying businesses would be conditional upon the savings being reinvested into the business. In order to qualify, eligible businesses would have to outline their proposals for reinvestment.
It is considered that this scheme would have a twofold effect; protecting small businesses via the provision of rate relief, whilst facilitating investment. This would enable companies to expand, modernise and/or invest in resources, as appropriate, to equip them to compete in the future. Additionally, it is argued that this could have favourable implications for the employment level in Northern Ireland; companies might use reinvested funds to employ additional staff, which in turn would generate additional Income Tax and National Insurance contributions.
How would it be funded?
Being a redistributive measure, the UK schemes are funded by a supplement on the rate bill of non-eligible businesses, i.e. the relief is paid for by larger businesses. For example, in Scotland, the supplement applies to the rate poundage for all subjects with a rateable value above £29,000. In 2005/6, this supplement amounted to 0.45 pence on a poundage of 46.1 pence 8.
However, options for independent funding in NI might also be considered. The FSB has proposed that the Treasury set up a £3 Billion ‘Rates Reinvestment Fund’ to cover the costs associated with a 50% reduction. They consider this to be realistic, on the basis that it represents half of the annual subvention from the Treasury.
Arguments against Small Business Rate Relief
Counter-arguments debate the applicability of a SBRR to NI businesses:
-
The ERINI have stated “…it is by no means clear that the most effective and economic way of supporting small business is through a blanket relief” and that “small businesses do need help but this has to be carefully tailored to their circumstances”.
-
Antrim Borough Council have argued against the robustness of the industrial base in NI: “The industrial base is not strong enough to support a small business rate relief scheme…placing an unfair burden on medium and large companies”.
Enterprise Northern Ireland suggested that Local Enterprise areas should be the subject of relief, rather than small businesses. Similarly, Omagh District Council suggested that TSN areas be given priority.
Sources:
-
Providing additional properties do not have individual rateable values exceeding £2,200 / combined rateable value of more than £15,000 (or £21,500 in London). The threshold for the combined rateable is dependent on the location of the main property. The main property is the only one that will have the relief applied to it. The charges relating to the additional properties are calculated using a standard multiplier. For eligible businesses with rateable values between £10,000 and £14,999) the small business multiplier is used – details on multiplier are in Annex 1. www.mybusinessrates.gov.uk/rates/other_reliefs/index.html