Impact of business rates on businesses in the city
Colliers International
This blog post has been produced for the Greater Birmingham Chambers of Commerce to provide insight on the findings of the Birmingham Economic Review.
The Birmingham Economic Review 2019 is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce, with contributions from the West Midlands Growth Company. It is an in-depth exploration of the economy of England’s second city and is a high quality resource for organisations seeking to understand Birmingham to inform research, policy or investment decisions.
This post is featured in the full Birmingham Economic Review 2019 and the Summary Review. These are available here.
The Business Rates Burden on local businesses in Birmingham has been steadily growing over the last 30 years with a detrimental impact across the sectors. In the Birmingham City Council Metropolitan area, business rates contribute £450 million per annum (19/20) out of a total of £3.1 billion to the local budget. This burden is spread across all non-domestic premises located within Birmingham.
Business rates have become an increasing proportion of outgoings for most businesses. From a rate in the £ in 1990 of £0.34 to above £0.50 today and every chance that by 2021 the multiplier will be closer to £0.55, and subject to inflation approaching £0.60 in the next few years. This is a doubling of the tax burden over the last 30 years. While the Government of all persuasions will point to reliefs given to small businesses, the majority of people employed in this City are based in properties which do not get small business relief and therefore those jobs are most at risk when businesses decide to close premises because of the burden.
The retail sector in the City makes up approximately 28% of the total of £450 million while the pub and restaurant sector makes up approximately 7%. Given the amount of warehouse and industrial space in and around Birmingham, it is not unsurprising that the industrial and warehouse sector accounts for 22% of that total while offices account for 22% also.
The impact of business rates on the retail sector has been widely publicised with several of the bigger retail chains vociferous about their business rates burdens, which have added to their other rising costs. The 2017 Revaluation has meant some have been hit by high, unsustainable rises – others are suffering from the four -year phasing of downwards reductions, meaning many businesses are paying more than they should be. This together with the impact of increased competition from online retail, has resulted in a wave of store closures, job losses and CVAs across the sector. Birmingham has not been immune.
Business rates have also been a factor for other sectors. They are a major factor in the lack of speculative development both in the office and industrial/warehouse sector which a bank is unlikely to fund unless a developer has either very deep pockets or a tenant signed up to take the space on completion. The change in empty rates since 2008 resulting in a charge of 100% of the rates bill on empty properties following a grace period of 6 or 3 months will mean the yield profile and the profit from a commercial undertaking will disappear very quickly unless mitigation strategies are introduced if a tenant cannot be found.
Business rates, a common feature of commercial property for centuries which have been paid, if not willingly, but without any great concern, have now therefore become such a burden that they are put into the equation on the decision on whether properties should be occupied, vacated or even constructed. At a 50% plus tax, this is not surprising- but is a ridiculous situation.
Clearly local services need to be paid for but short-term political decisions by all parties over the last 30 years has meant a smaller number of larger ratepayers are faced with a much higher burden particularly when the yearly annual inflation figure is factored in over a generation. As business rates become a major part of the decision-making process, this is stifling growth, not only in Birmingham, but in many locations around the country and it appears that there is little political appetite to grasp the nettle.
If Birmingham is serious about competing on an international level with cities throughout the world, then Government needs to get to grips with this issue which is growing bigger every year. The City Council also has a responsibility to help businesses in a relatively minor way but in a way that will send the right signals to encourage people to locate in the City, stay in the City and grow in the City.
An example is the tram extension to Edgbaston and other large infrastructure projects which have had a negative impact on getting in and around while the works are ongoing. Rating agents including ourselves who have made representations to the Valuation Officer for temporary reductions because these works are disrupting business. These are being resisted because Birmingham City Council can ill afford to give any money away. This is extremely short sighted. Businesses have failed because of the works in the City Centre and a recognition by Central Government as well the City Council would go a long way to sending the signal that yes Birmingham is open for business and is prepared to work with businesses who experience short term difficulties. Ignoring the issue is a detrimental effect on the City Centre and its growth.
Birmingham is a great City with a mass of potential and a resilient business community. However, a little help from those in a position of power would not go amiss. This is why I and others have been canvassing for a sensible and proper business rates reform to alleviate the worst consequences of this punitive tax.
John Webber
Head of Business Rates
Colliers International