THE BLOG
21/05/2014 09:19 BST | Updated 20/07/2014 06:59 BST

What Are the Real Benefits of the Government's Business Rates Relief to the UK's High Streets?

At the start of 2014, details emerged about the Government's long term plan to boost the UK economy, which was first announced in last year's Autumn Statement. Along with business rate increases being capped at two per cent, this April a 'cash injection' of £300 million was made available to give small businesses £1000 off their next business rates bill. But is everything really as it seems?

A whole host of small businesses including restaurants, pubs, salons, shops, chemists, opticians, laundrettes and even car showrooms are eligible for the discount as long as their premises have a rateable value of less than £50,000. (The exclusion of betting shops, pawn brokers and payday lenders suggests these aren't the companies the government wants to lead Britain's economic recovery.)

This measure mirrors the calls made towards the end of 2013 from Labour leader Ed Miliband and his shadow business secretary Chuka Ummuna to address the business rates issue. At the time they argued that 80,000 big businesses had seen a £6 billion reduction in corporation tax since the coalition came into power, a figure set to reach £10 billion by the next election in 2015. Over the same period, 1.5 million small businesses would have seen their rates rise an average of £2,000 each.

Recent research by the Forum of Private Business found that 46 per cent of small businesses see business rates as a "continuing burden" that is potentially restricting growth. To many small business owners, then, it appears that the government is attempting to address one of their key concerns. Indeed, as the cost of doing business keeps on rising, this £1000 gesture is a good start (not to mention one that's media friendly).

But, after digging a little deeper, I find myself asking, how much does a small business really stand to gain?

Using the statistics provided in the government's guide to the business rates relief scheme, a property with a rateable value of £40,000 pays £19,280 a year in business rates. This means the £1,000 discount actually only makes up about five per cent of the occupying business' annual rates bill.

Rates have increased two per cent since last year (and in fact should have risen higher if the government hadn't capped them at this amount), which in this example is nearly £400, so already in real terms the amount being given back to businesses through the relief is just over £600.

Now consider this hypothetical business employs three members of staff at minimum wage. George Osborne believes the minimum wage should be increased, "as the country can afford it" next year, and suggests that to reach a level equivalent to how things were before the economic downturn, it would have to go from £6.31 to £7 an hour. If this raise occurred, that £600 refund designed to ease the cost of doing business, would be gone in less than two months (40 hours a week at .69p extra).

Furthermore, the decision to award the relief in the first place is at the local council's discretion and can be rejected if, for example, "it would go against the local authority's wider objectives for that area", so there's no guarantee that if you were eligible for the refund, you would get it. Finally, whilst obviously there is a chance that this relief could be extended, currently it is only available for the next two financial years, so to call it part of a long term economic plan is somewhat misleading.

Any measure that benefits the UK's small businesses, the backbone of the country's economy, is a positive thing - but this rate relief is essentially borrowing from Peter to pay Paul.

It is indeed a good first step, but not enough to make a significant difference to the UK's small businesses. Perhaps then, as many voices, from business owners and retail specialists to journalists and even celebrities have argued, a rethink on the amount small businesses are liable to pay in rates in the first place is needed instead, to give companies the chance to grow, hire more staff, bring more customers in and drive the British economy forward.

Christian Nellemann is founder and CEO of XLN Business Services, which supplies telecoms, card processing, energy and insurance to 130,000 of the UK's small businesses.