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What needs to be done on business rates and Government measures

Colliers

As we try to emerge from the ashes of Lockdown with only still glimpses of “normality”, how have the Government’s measures in terms of grants and business rates holidays been faring?

Grants

The Government has now closed the Small Business Grants Fund (SBGF) and the Retail, Hospitality and Leisure Grants Fund (RHLGF) for new applications as of Friday 28th August 2020, along with the £617 million Discretionary Grant Fund.

The funds had been set up on March 23rd to allocate funds to Local Authorities to pay businesses suffering from the impact of Covid-19.

The grants have provided some much-needed relief to many small businesses and retailers, which is commendable. According to Government figures as of 17th August 2020 some £10.95 billion of the £12.33 billion originally allocated in the grant schemes has been paid out.

However, it’s not been all plain sailing – as the grants come to an end, a sizeable £1.37 billion- is still undistributed, primarily because of State Aid Rules which stopped some businesses with multiple properties, particularly multiple store retailers, from accessing all the grants. And, because some local authorities had too much grant to pay out, but in others the grant allocations were simply not big enough.

This imbalance was caused by basing the grants on the rating system, with initial grants granted to those companies in receipt of small business rates relief , with a RV (rateable value) of under £15,000, – or in terms of the retail grants, a RV of less than £51,000. However, because RV is based on rents, many London businesses were not eligible given the higher level of rents in London compared to elsewhere in the country.

Colliers is therefore petitioning that the Government rather than return the £1.37 bn unused grant monies to BEIS, redistributes it to support those businesses, who have missed out on funds so far.

Business Rates Holidays

In March the Government gave business rates holiday to some sectors of the market principally: retail, leisure and hospitality for a 12-month period, regardless of size or profitability. And while this was much needed by many and applauded, the policy has still left many businesses out in the cold.

Key sectors such as the offices or industrial sectors did not receive a rates holiday- nor did telecoms, manufacturing and financial services which are also key to the UK economy and many have struggled in these difficult times. The tumbleweed blowing through the business districts of most of our major cities illustrates the point.

Given many offices were not in use for three months during Lockdown following the Government’s prohibition of use, and now are only just becoming partly occupied, many businesses have claimed empty rates relief on the grounds that their offices were closed. A handful of local authorities have shown discretion and granted reliefs in some cases, but the majority have refused.

At Colliers we have urged the Government to instruct Local Authorities to show flexibility and support businesses to help them back on their feet and to grant empty rates relief for this period. In Northern Ireland all sectors, were given a three months Lockdown business rates holiday. It would be sensible to mirror the scheme this side of the Irish Sea.

And for those sectors- such as retail and hospitality – which have benefitted from the one-year business rates holiday there have still been numerous casualties with many household names entering administration. Other well-known brands are permanently shutting stores and restaurants and planning to lay off currently furloughed staff.

The Government needs to decide now what it is going to do next year soon - whether it extends the current business rates holiday for another six or even twelve months from April 2021 or whether it gives 50% rates relief. Such factors will be put into the decision-making process by retail management, as they consider their strategy ahead- so we urge the Government to communicate its proposals as soon as possible or decisions to stay open or close will have been made

Appeals

Latest figures released (August 6th) on CCA, the "Check Challenge Appeal" Business Rates Appeals System illustrate the intense pressure on the VOA, the Government’s Valuation Agency to deal with appeals caused by the “Material Change of Circumstance” following the Covid-19 pandemic. The system was overstretched before the pandemic and Lockdown struck. 

In England, in the three months to June 30th, 2020 around 144,910 new Checks were registered, which is nearly the same as the three-year figure announced three months previously (1 April 2017 - 31st March 2020) when 158,910 Checks were registered. The new figures effectively double the total number of Checks registered up to a massive 303,820.

This massive increase in the numbers of started appeals is due to an increasing number of companies claiming a Material Change of Circumstance (MCC) as a result of the impact of Covid-19 on their businesses. Businesses in all sectors are arguing that rental values have plummeted and as their rateable value should mirror rental values, these need to be adjusted downwards significantly.

Colliers is concerned that the backlog of appeals could snarl the system with businesses going under before evidence is assessed. We urge for a collaborative approach between the VOA, ratepayers and their agents as soon as possible to agree sensible and fair reductions across the board to those sectors most impacted. This will be essential if businesses are to plan and hopefully work through this crisis, especially as these new figures do not of course take into account the number of new Checks registered in July, where figures are also expected to be high. 

Revaluation

In July the Government announced it was postponing the business rates revaluation for a further two years. The next revaluation in England will instead take effect on 1 April 2023 and: “so that it better reflects the impact of Covid-19, it will be based on property values as of 1 April 2021."

While we understand why the Government has taken this approach- given the impact of Covid-19 on values-  it does mean we will have another six-year list. We think there are 3 issues that need to be considered:

  • The values currently in the rating list should be reduced because of the effect of Covid-19 on the back of tens of thousands of MCC appeals .
  • A revaluation date of April 1st, 2021 will still see values significantly impacted by Covid-19 and we will see a significant reduction in rental values. What the Government will therefore potentially be faced with is either a significant reduction in the annual tax take of £26 billion, or, if it wishes to maintain £26 billion of receipts, it will either have to increase the multiplier from the current level of 51p significantly or introduce another calamitous transitional relief scheme.
  • The alternative could be that a properly resourced VOA could carry out a revaluation in 12 months and still introduce a new list on 1st April 2022.

We believe this would be better than such a delayed list. Under the latest proposals, rate bills will still be calculated according to the 2017 list and 2015 values until 2023- a six-year list. Such a long list is in nobody’s interest and only intensifies the need for urgent business rates reform. 

Reform

The Government has now at last published its Call for Evidence in respect of the fundamental review of the business rates system in England trailed in the 2020 Spring Budget.

This will be welcome.  Last year the Treasury Select Committee heard evidence from a number of businesses and professionals within the industry and came out with string recommendations which made some very damning conclusions on the current system, particularly about the multiplier and the appeals system and resources at the VOA.

The Call for Evidence is seeking evidence from any interested parties, including ratepayers, agents and local authorities in respect of: 

  • reliefs and the multipliers .
  • changes in respect of revaluation, transitional relief and plant and machinery and investment;
  • changes to the administration of the system, including appeals, the accuracy of the rating lists and the billing process; and 
  • views on alternative property and non-property-based taxes.

Responses in respect of reliefs and multipliers are requested by 18 September with a view to informing an interim report in the Autumn. Responses on the other areas on which evidence is sought are required by 31 October ahead of the conclusion of the review in Spring 2021.

Our view is that the recommendations of the Treasury Select Committee published in late 2019 - to reduce the multiplier, which has grown out of proportion, tackle the appeal system and resource the VOA properly are fundamental. We also need to rebalance the disproportionate business rates tax bill that falls on physical retailers.

The elephant in the room is indeed the multiplier £0.51 today – this needs to be reduced across the board. Any shortfall can and should be made up from a digital / delivery tax.

The Government has a real chance to get its Business Rates reform right. We wait with bated breath to see its proposals.