Why we still need to keep Business Rates High on the Government's agenda
Colliers call MPs to Challenge the Government on Manifesto Promises for Reform and Levelling Up Agenda
“MPs must continue to challenge the Government on its progress with business rates reform,” says John Webber Head of Business Rates at Colliers, “Or all promises of a levelling up agenda will be meaningless.”
Webber's call is in anticipation of a Parliament Backbench Business Committee Debate taking place this week, led by Peter Aldous, MP for Waveney which will be discussing the question of business rates. The debate will receive a Ministerial response.
Webber's call is despite welcome decisions in the Autumn Statement where the Government not only froze the Multiplier but abolished downwards transition in the next revaluation, allowing rates bills to immediately reflect falling rental levels The new Revaluation in April 2023 will also provide some reprieve for retailers with rateable values (RVs) down an average of 10% for the sector and a greater share of the tax burden passing to the distribution and industrial sector - RVs averaging a rise of 27%. This will mean the likes of Amazon will see around a 38% rise in their rateable value come the new list, taking off some of the pressure of the tax burden from the high street retailer.
However, according to Webber these measures are the tip of the iceberg. “In his Autumn statement, the Chancellor was, in reality, merely putting a sticking plaster on a gaping wound.” “Whilst we welcome the freezing of the multiplier and removal of downwards transition, the fundamental flaws of the business rates system remain.”
These are the issues Colliers believe MPs in Parliament need to be discussing this week:
Fallout from the New Rating Revaluation List - 2023
Firstly, headline figures are obviously averages and there are still large discrepancies on the new rating list, probably unsurprising given the VOA was assessing properties in the midst of Covid when many properties were temporarily closed, or deals were being struck with landlords.
What is now becoming apparent is a two-tier system is appearing: those occupiers and owners of properties that either themselves or via agents made representations to the VOA during the assessment process appear to have been more successful in negotiating lower and more correct values.
That means the big stores in Oxford Street, or the big hypermarkets or shopping centres, will see the biggest drops in their RVs and ultimately rates bills from April 2023. But some of the smaller shop traders in market towns across the UK, often without any representation to the VOA, may not see much reduction at all. Obviously the VO they did have a difficult job to assess values - but as Webber points out, “You have to ask yourself a very simple question- what would a tenant pay to rent a pub / hotel / office or shop when on the valuation date of 1 April 2021, they either couldn't open it or if they could there were significant restrictions?
Unless this discrepancy between those well represented and those who are not is dealt with, the Government's levelling up agenda will be meaningless.”
Lack of Transparency from the VOA and an Unfriendly and Ill-Equipped Appeal System
Meanwhile the valuation process that allocates shops their rateable values is not transparent. The VOA does not share the evidence that it uses to form the basis of its valuations. The only way business occupiers not happy with their RVs can access this evidence is by challenging the valuation through the “check challenge appeal” system (CCA), a lengthy and costly process for the occupier. We expect that many challenges to the valuation process will be submitted over the coming months following concern that the VOA uses flimsy evidence when conducting property valuations.
The difficulty is that the current system makes it extremely hard for businesses to appeal their assessments. Recent tinkering with (CCA) and removing the Check part of the system has only added to the confusion. The request for the annual provision of information from the ratepayer, not only confirming physical details of the property on an annal basis but also updates on rent and lease and trading information has also added a significant administrative burden.
Colliers believes the current system of appeals is therefore not fit for purpose - only those companies that can afford professional advisors get to the right answer- again contrary to the levelling up agenda. The system should be transparent, easy to access for all and allow appeals to be resolved in 12 months.
Rogue Rating Advisors- Unhappiness with rates assessments and a complicated process of dealing with appeals system will also only drive more smaller businesses into the arms of rogue rating agents who promise to negotiate lower bills, but often disappear after taking an upfront fee. Colliers say they see the numbers of such “advisors” rise every revaluation and urges the government to regulate the industry and set up a register of rating advisors, similar to the FCA, to make sure the cowboy and criminal element that prey on such businesses are kept at bay. Until reformed, businesses need the best advice from professional advisers if they are to navigate the complex CCA system.
The Multiplier (the UBR used to calculate rate bills) is still unsustainably high. Although it was frozen at 51.2 p and 49.9 p (for small businesses) for 2023-4, this is still the first time a new list has started with a multiplier over 50p- which means as time moves on and the multiplier rises with inflation this figure will continue to increase.
Indeed, the Chancellor froze the UBR at 51.2p for one year only (2023/ 24). Business rates for retail and other sectors will therefore rise from April 2024.
Nowhere else in Europe do businesses pay half the rental value of premises in property taxes. Set at this level, business rates deter new investment in business. The UBR was just 34p when first introduced in 1990 and Colliers has long been saying it should be rebased to that level that businesses can afford. A lower UBR would reduce the barriers to entry, expansion and innovation for businesses encouraging growth and broadening the tax base, thus plugging any gaps in revenue for the Exchequer caused by a lower UBR.
Retail Reliefs The extension of business rates relief for retail and hospitality premises from 50% to 75% in 2023-4 is welcome, even though this only helps smaller retailers because it only applies to the first £110,000 of business rates paid. The OBR envisages that this relief will be removed from 1 April 2024, which would leave such retailers with a massive tax hike at that point. A tapering scheme will need to be applied.
Reform of the Sticking Plaster Reliefs System Re-basing the multiplier to something affordable will mean that the whole question of the myriad of reliefs can become simplified and resolved, as not so many businesses will need to claim them. Small Business Rates is vital to support the economy and local businesses in the community, particularly whilst the multiplier is so high, and Colliers support that. However, many reliefs have been handed out by politicians over the last 30 years to satisfy short term political and not economic goals, culminating in a system of complicated reliefs that is difficult to navigate for ratepayers. The business rates system currently comprises 12 reliefs and, in some places, there are business rates deserts- about 800,000 property occupiers who pay nothing in business rates at all due to the reliefs system. Surely everyone that benefits from public utilities and local services needs to pay something- but at a fair rate. Colliers believes reliefs should be reviewed at least every 3 years.
Extend Empty Property Rates Relief and accept that the significant amount of long term empty commercial property in England is due to a lack of market demand and long-term socio-economic factors, not because the landlord wants to keep it empty. The six months empty rates holiday should be extended to twelve months and extended from the warehouse and industrial sectors to include retail and offices.
Introduce Annual Revaluations - The Government has moved from five-yearly revaluations to three-yearly revaluations- a step in the right direction- but still far from a more equitable system of yearly revaluations. By implementing yearly revaluations, business rates bills will accurately reflect the dynamic movements of the market and allow occupiers to benefit immediately from adjustments to rateable values. The increased occurrences of significant and unforeseen events, such as the pandemic and the war in Ukraine, further emphasise the need for a system that is able to more accurately react to rapidly changing economic landscapes.
Review Plant and Machinery- There should be a wholesale and then regular review of what is or is not rateable in relation to plant and machinery. All plant that is an integral part of the trade process should be exempted from business rates as should be investment in new technology that make businesses more green/ sustainable. This would allow the rating system to complement government policy and targets.
As John Webber concludes, “ In its 2019 Manifesto, the Conservative Party promised, “To cut the burden of tax on business by reducing business rates. This will be done via a fundamental review of the system.“ Sadly, it has not yet fulfilled this promise and it was disappointing to hear Michael Gove say recently there will be no time for business rates reform before the 2024 election.
Moreover, far from cutting business rates, this year's list showed a general 7.1% increase in rateable value. And looking at the OBR report it seems that the Government is now forecasting that income from business rates is only going one way- upwards. Forecasts predict the income will rise to nearly £36 billion by 2027/28 (from £28.5 billion in 2022/23), which appears contrary to the Conservatives' manifesto pledge.
Note: OBR : Income Expected from Business Rates
So, these are the issues MPs must debate on Tuesday. The Labour Party has threatened to abolish business rates altogether if it gets into power- but its plans on what to replace them with remain woolly. Rather what we need is a well-managed and transparent business rates system, and we need it now. We urge MPs to call out the government if it continues to ignore the call for urgent reform and help those businesses in their constituencies floundering in this over burdensome and unfair system. Only then can the government's levelling agenda finally be achieved.”