So far there have been no real signs that the government will do anything concrete to alleviate the business rates “issue” in the forthcoming Budget, other than to call for another review, say business rates experts at Colliers International- and this is despite certain sectors experiencing a greater disadvantage in the current system than others.
Retail and the hospitality sector are prime examples. Retailers pay an un-proportionate slice of the UK’s £26 billion business rates bill and this year are paying in the range of around £7.625 billion. This burden is based on the size and value of their properties, no matter how well their businesses are doing.
For many, rates bills are just too high, with rates based on RVs set by the 2017 Revaluation based on rental levels in 2015, which were higher than levels we are seeing today, and in no way reflect the current crisis seen in the sector.
Last year, according to the Centre for Retail Research 16,073 stores closed and a total of 143,1000 jobs were lost in the sector, up by more than a fifth on 2018’s job losses. And although business rates is not the only factor for why retail and the high street is struggling- it’s certainly an important one – and one retail businesses leaders are citing as causing serious concern.
As John Webber Head of Business Rates at Colliers International says, “Despite all evidence to the contrary, this government seems either unable or unwilling to get to grips with an issue that is creating a major burden on many UK businesses, particularly in the retail sector. Its response to the Treasury Select Committee’s recommendations on business rates was very much a whitewash and other remedies the government has so far suggested have concentrated on offering reliefs to smaller businesses and retailers- doing nothing to alleviate the bigger chains who are the ones closing stores and cutting jobs.”
So, what should the Government do in Budget 2020 on Wednesday? Colliers recommends it should implement the recommendations made by the Treasury Select Committee last October, together with:
- Immediately freezing any business rate increases in April 2021 – Many businesses have already had to swallow steep business rates rises plus inflation since the 2017 Revaluation. It is not viable that those who have seen big rises should be paying even more.
- Abolish downward phasing after the next 2021 Business Rates Revaluation, enabling rate payers to pay their true rates liability immediately and not wait four years to do so. Downwards transition has caused one of the main hardships following the 2017 Revaluation, whereby many retailers that should have seen drops in their rate bills, only saw these reductions gradually phased in, with the result that many have been paying more in their rates bills than they should have been. This was certainly an issue in the demise of Toys R Us- but the issue has impacted on retailers such as Debenhams, House of Fraser and more recently Beales too. A further delay in receiving business rates reductions post the new Revaluation in 2021 could certainly impact on several decisions to either close or keep open stores in a number of regional high streets- so it is essential the Government learns from previous mistakes and gives any alleviation to retail pain immediately.
- Review and implement a policy to reduce the multiplier. (The UBR against which the rateable value of the property is multiplied to give the final rates bill.) This multiplier for larger properties is currently around 51.2p in the £1- so is now more than 50% tax. If it could be reduced to say 34 p in the £1, as it was in 1990, many of the extremely high rating bills would be diminished into something businesses could meet. Colliers International has shown in its own research that even allowing for an increased number of hereditaments, if the net tax take today was the same as in 1990, the multiplier could easily be reduced to a 30% figure. The reality is that if the multiplier was reduced by this amount, most of the questions and issues surrounding business rates would largely evaporate
- Look at and reform the whole system of reliefs. The current system of reliefs is incredibly complex and has creates business rates deserts in some parts of the country, where due to the system of small business reliefs, some businesses are paying no business rates at all for the services they receive.
The Government has denied this is a problem and argues that reliefs ““support certain sectors or incentivize particular behaviours” and lists the Small Business rate reliefs and Retail discounts it offers-so that “675,000 of the smallest businesses pay no business rates now”.
Colliers ratings experts argue that every business should pay something for the local amenities they enjoy, but at a sensible rate. They suggest asking all small businesses to pay a minimum contribution to the system and looking at other reliefs, such as agricultural reliefs which may need reforming, therefore spreading the load more evenly across the UK economy.
As to the small business reliefs the government boasts about – these will do nothing to “save the high street” since it is the bigger retailers who have been hammered by business rates and are the ones making the redundancies. There seems so far to have been no relief for them.
- Reform the appeals system and support the VOA, particularly reforming CCA (the business rates appeals system) introduced in April 2017 and described by Webber and other commentators as the “car crash ready to happen” since it has introduced an over complicated digital system few could navigate.
CCA was heavily criticized by the TSC which labelled the delays in which businesses are getting their business rates appeals through the system as “unacceptable”. According to Colliers, looking at latest CCA stats produced last month, businesses, even on a best-case scenario are going to be waiting over two and a half years to get through the appeals process. For many businesses, this is totally unacceptable.
Colliers suggest the Government properly resources the VOA to deal both with the backlog of appeals and the burden of more frequent valuations which we will see as we move towards three yearly revaluations.
- Emergency Measures – Centrally fund “Discretionary Rate Relief” Against a background of Coronavirus which may see space “under-utilised” as shoppers keep away from stores and restaurants, warehousing for imported goods stay empty and increasingly office staff stay at home, Colliers believes the Budget would be a good opportunity for the Government to provide some emergency relief to those businesses impacted by the virus.
Currently “discretionary rate relief” can be granted under Section 44A of the Local Government Finance Act 1988, but this is currently funded by the Billing Authority, who, given constraints already on local finances, are reluctant to award. Colliers suggests the Government should take this under central control and support businesses struggling following coronavirus, with a discretion relief, centrally funded.
Webber concludes: “The 2020 Budget could be a real opportunity for the Government to look hard at the business rates crisis and implement some immediate quick win measures to help businesses.
“Obviously, we would still need to look at some long-term alternatives to help fund local government finances, such as perhaps some kind of sales tax to help level the playing field between physical and internet retail, or even taxing deliveries from internet providers- which would have environmental benefits too.
“But there are things that can be done now.
“It looks like the Government might call for some kind of review, but our fear is that this will only be kicking things into the long grass yet again. The Treasury Select Committee made some sensible recommendations last Autumn, after six months of brainstorming between experts in the industry and businesses. Will Budget 2020 implement these? Or will we see another brushing off of the issue and just some extra reliefs to small retailers and pubs, as we’ve seen in recent Budgets? Only time will tell. But I’m not holding my breath!”