As the deadline for submissions for the first part of the Government’s Call for Evidence on Business Rates Reform (covering questions over the Multiplier and Business Rates Reliefs) has now closed, what should the Government be considering about these two aspects of business rates system?
The business rates team at Colliers International, which was advising clients on their submissions, has made its own recommendations and favours a complete re basing of the multiplier and a reduction in the time between revaluations- at least a move to 3 yearly or ideally annual revaluations and a total reform of the reliefs system.
It’s all down to the Multiplier. The current multiplier has reached an unsustainable level of over 50 p in the £1, and directly impacts on the decisions made by companies as to whether they open, close or downsize their bricks and mortar estate. A tax that is now so high it impacts on these decisions, which in turn affects employment and investment, has to change.
Re-basing the multiplier to something manageable, that businesses can afford, will mean that the whole question of the myriad of reliefs can become simplified and resolved also.
Currently Central Government places the blame on Local Authorities’ financial mismanagement and Local Authorities rightly state that they have no control over how the multiplier is set. There is no ownership and correlation with ever increasing bills.
A clear 3-year business plan should be set out by local authorities and explained to the electorate so people could see where the money raised by business rates is being spent.
Short term decisions to grant reliefs have been made by all political parties over the past 30 years- - it’s the reason we are in the mess we are today. Therefore, the whole question of reliefs needs to be properly overhauled and re-balanced to meet the needs of modern-day businesses.
In the post Covid world all business will assess the requirements they have for property. The old argument that lower rates will lead to higher rents has been removed as most rents will reduce in the coming months and years and most landlords will be happy to have a property occupied.
We might also consider a system in which landlords pay something in business rates even when the premises are occupied. Many European systems levy an annual charge on landlords and even a 5p or 10p in the £1 levy would directly involve landlords in paying for local services while reducing the incentive for higher and higher rents which inflate the Rateable Value.
Turning to Business Rates Reliefs
The reduction of empty rates relief and thus increase of property tax following the Lyons review has not had the desired effect of “encouraging owners of empty property to find ways to make better use of it either through using it themselves or attracting new tenants.”.
In fact it has had the opposite.The Lyons Review was based on the premise that landowners sat on empty properties to make speculative gains from the rise in land values and so by increasing the property tax on empty property, this would disincentivise them from doing so.
The reality has been different - the significant amount of long term empty commercial property in England has not been due to an unwillingness on behalf of landlords to let properties, more so due to a lack of market demand and long-term socio-economic factors.
Indeed, the sector identified by Lyons as receiving most relief in 2006/07 (industrial and warehousing) today has the lowest void occupancy level while retail premises are a sector with growing vacancy issues which will only get worse over the coming months because of Covid-19.
This first part of the Government’s call to evidence allows us to give a generic view on the whole system. In the second part of the consultation we will be able to be industry specific and look at ways in which any reduction in the business rates tax take is to be replaced, whether by an online tax system or by other means.
Business rates form a vital part of local authority funding. However, the system has got old of kilter with the needs and current business and economic climate.
A 50 % plus tax, likely to rise further is just unsustainable and will lead only to further business closures and job losses, particularly when the Covid-19 business rates holiday for the retail and hospitality sector come to an end next April.
We welcome the call for reform – but call on the government to come to its conclusions and offer solutions quickly. In this period of pandemic, businesses are making their decisions now about whether they stay open or close.
Increasing costs, of which business rates play a big part will be a significant factor in the decision making.
We call for a drastic cut in the multiplier and subsequent business rate bills and we urge that this is done sooner than later. Next year or even by the November Budget could just be too late – and the government may find the golden goose of business rates really has been well and truly cooked.