Review of non-domestic rates reliefs: summary

Non-domestic rates (NDR) reliefs provide financial support to specific types of ratepayers, including small businesses and charities. In recent years, the Welsh Government has explored options to reform local government finance. In March 2022, the Minister for Finance and Local Government set out the Welsh Government’s plans for the reform of NDR during the current Senedd term. Following consultation in September to December 2022, the Local Government Finance (Wales) Act was introduced in November 2023 and delivers or supports most of the proposals for NDR reform set out in the consultation.

Against this backdrop of interest in improving the NDR system, Alma Economics was commissioned by the Welsh Government to review NDR reliefs in Wales. The primary objective of this research was to gather evidence to inform the development of a set of key principles to guide future changes to NDR reliefs.

Research activities included

Strand 1

To establish the principles for assessing NDR reliefs. We (i) mapped NDR reliefs through a scoping exercise to understand reliefs’ characteristics and aims and to assess which reliefs were in scope, (ii) determined the principles through a desk-based review by developing a long-list of principles that was narrowed down by using economic theory, a high-level evaluation exercise, and insights from tax experts, (iii) interviewed 12 experts in taxation, with a mix of representatives from inside and outside of the Welsh Government, to gather feedback on the draft principles, and (iv) evaluated the reliefs to ensure the principles have useful, practical applications and to develop key metrics for assessing principles against each relief.

Strand 2

To assess the practical implementation of reliefs and their administration by local authorities. We conducted four online workshops with local authority representatives who are engaged in the administration of NDR reliefs, which included 20 officials representing 15 local authorities.

Strand 3

To explore the perceptions of reliefs among ratepayers and representative bodies. We (i) worked with Beaufort Research to add questions to their Business Omnibus Survey, which covers a representative sample of Small and Medium-size Enterprises in Wales, of which 423 respondents operated out of premises and so provided our sample, and (ii) engaged 10 ratepayers and two representative bodies through a focus group, interviews, and email responses, across eight local authority areas.

Outcomes from Strands 2 and 3 were used to corroborate the key principles established through Strand 1. The project ran from June 2024 to March 2025.

Strand 1 insights

Through a desk-based review of the literature and engagement with tax experts, we identified four principles for assessing NDR reliefs.

Simplicity and compliance

NDR reliefs should be easy to understand and access for ratepayers and have low administration costs for local authorities. Reliefs should also encourage compliance by reaching intended beneficiaries and preventing misuse of the system, which can be achieved through simplicity.

Certainty

Businesses should be able to rely on the future of NDR reliefs, allowing them to effectively plan and budget for future liabilities. This includes having a clear timeframe and monetary value for reliefs.

Revenue sufficiency

NDR reliefs should only be offered if the government has sufficient revenue to afford the relief.

Economic efficiency

NDR reliefs should minimise the market distortion created by NDR, avoid introducing new distortions, and maximise the intended positive outcomes of the relief.

These principles were determined to be generally suitable and most of them can be consistently applied to assess the NDR reliefs in scope. However, it is important to note that uncertainty around tax incidence (i.e., who ultimately bears the burden of the tax between the property owner and the property occupier) affects the ability to evaluate the economic efficiency of some of the reliefs. Therefore, the principle cannot be applied consistently to assess NDR reliefs.

Strand 2 insights

Through workshops with local authority representatives, we found that they agreed with the four suggested principles for assessing NDR reliefs.

Simplicity and compliance

Some representatives argued that reliefs could be simplified further to ensure that ratepayers understand them. They also mentioned that the complexity of the current system means explaining how NDR reliefs have been applied to a ratepayer’s bill is not always easy.

Certainty

Stability and consistency of reliefs was seen as highly important for ratepayers’ future financial planning. Local authority representatives felt that they are often not able to inform businesses of the future of NDR reliefs.

Revenue sufficiency

Representatives viewed this as an important principle for assessing NDR reliefs given the role of NDR in funding local services.

Economic efficiency

Representatives noted that, in some cases, reliefs can generate unintended distortions that reduce economic efficiency. For example, they stated that Small Business Rates Relief allows certain profit-making businesses to pay less in NDR than some small charities.

Other findings included where local authority representatives unanimously felt that businesses have low awareness of reliefs, particularly Retail, Leisure and Hospitality Rates Relief (RLHRR) after moving from automatic to an application-based process and Transitional Relief. The key challenge that local authorities identified within the current system of reliefs is assessing eligibility. Despite government financial support increasing, local authorities also perceived real-terms reductions and workforce capacity issues. They described a lack of resources available to assess occupancy for commercial purposes.

In order to improve the administration of reliefs, local authority representatives suggested (i) re-prioritising resources for assessing eligibility, (ii) educating ratepayers about sharing accurate information, and (iii) abolishing Transitional Relief now that NDR revaluations will be more frequent (at three-year intervals).

Strand 3 insights

Through the survey of ratepayers, we found:

• just over half (53%) of respondents did not receive or did not know if they received NDR reliefs; small Business Rates Relief (41%) and RLHRR (12%) were the two most commonly reported reliefs received
• there is substantial uncertainty around the future of receiving NDR reliefs (48% of businesses felt uncertain or very uncertain) and there was little variation in this between business size and activity
• for those aware of the NDR reliefs they receive, the highest reported impacts were management of other costs (62%), revenue growth and avoided falls in revenue (both 37%), and increased investment in the business (35%)
• nearly half of relief-receiving respondents (48%) stated that NDR reliefs have a significant or very significant impact on their ability to operate; nearly all said that NDR reliefs help small businesses in Wales generally

Through interviews, focus groups, and email responses with ratepayers and representative bodies, we found:

• businesses felt that the current system is complex and can be confusing for ratepayers; representative bodies called for a move away from the need for reliefs and instead re-work the NDR system itself
• businesses felt very unaware of the NDR reliefs currently on offer and suggested that local authorities do not currently provide sufficient information; reflecting survey findings, the most common reliefs that businesses were aware of are Small Business Rates Relief and RLHRR
• there were mixed levels of understanding of eligibility criteria for reliefs; the application process for NDR reliefs was also said to be confusing and frustrating as well as being subject to lengthy delays
• reflecting survey findings, businesses described substantial uncertainty, with fear that some NDR reliefs might be reduced or removed soon; this was said to have a notable negative impact on future planning
• for those business aware of the NDR reliefs they receive, the reliefs had had a substantial positive impact and were described as a “lifeline” for businesses; however, they were also seen as insufficient in addressing the full extent of the support needed by businesses

Findings from across all three strands led to the following conclusions regarding the principles that should be used to assess NDR reliefs.

Simplicity and compliance

Across all three strands, there was agreement that simplicity and compliance is an important principle for assessing NDR reliefs. Tax experts noted that simplicity can be considered in terms of individual reliefs as well as the system of reliefs as a whole. This principle was particularly important to local authority representatives, ratepayers, and representative bodies, who all called for simple reliefs that ratepayers are aware of and can fully understand.

Certainty

Across all three strands, there was agreement that certainty is an important principle for assessing NDR reliefs. Tax experts, local authority representatives, ratepayers, and representative bodies all agreed that certainty around reliefs is essential for businesses’ future planning, both in terms of clear timeframes and monetary values.

Revenue sufficiency

Across Strands 1 and 2, there was agreement that revenue sufficiency is an important principle for assessing NDR reliefs. Tax experts noted that other considerations around revenue sufficiency include administrative costs and short-term versus long-term costs and benefits of reliefs. Local authorities agreed with this principle, given the role of NDR in funding local services. This principle was less directly pertinent to ratepayers themselves.

Economic efficiency

Across Strands 1 and 2, there was agreement among tax experts and local authority representatives that economic efficiency is an important principle for assessing NDR reliefs. However, uncertainty around tax incidence affects the ability to evaluate the economic efficiency of some NDR reliefs. This principle was less directly pertinent to ratepayers themselves.

Report author: Alma Economics

Views expressed in this report are those of the researchers and not necessarily those of the Welsh Government.

For further information please contact:
Louisa Smith
Knowledge and Analytical Services
Welsh Government
Cathays Park
Cardiff
CF10 3NQ

Email: Research.PublicServices@gov.wales

Social research number: 44/2025
Digital ISBN: 978-1-83715-769-3