Why skating over business rates in Budget 2021 will be a mistake
The Government must not just skate over business rates when it finally responds to the consultation on business rates reform in the Autumn Statement on Wednesday. According to John Webber Head of Business Rates at Colliers, after four delays in the last year, for the government to just “tinker around the edges” as press reports have indicated, “will be an affront to business and will cost livelihoods and jobs.”
The system which provides £32 billion gross (£26 billion net) for local authority funding is under fire, and needs a proper reform, particularly because the current system is unfairly skewered against the retail sector who pay nearly one third of the tax. Due to the gap between revaluations many retailers and hospitality businesses are paying rates bills linked to rental values in 2015- despite very different current market conditions. Unaffordable business rates bills have been cited as one of the key reasons for the decline in our high streets in recent years as more and more retailers either go bust or cut store number and jobs.
“All the experts in the industry agree the system in current form is unworkable,” says John Webber, Head of Business Rates at Colliers “And we have been clear on the areas that should be reformed:
There is almost unanimous agreement that overall rates bills need to be lower- at Colliers, we believe the multiplier (UBR used to calculate rates bills) should be cut to 30p, which is more manageable for businesses than the current 51p in the £ tax.
“The current multiplier is now so high that it directly impacts on the decisions made by companies as whether they open, close or downsize their bricks and mortar estate. A tax that therefore in turn affects employment and jobs must change.”
The burden of taxation should be shifted away from the physical retail sector.
The myriad of rates reliefs should be reformed and reviewed at every revaluation cycle to prevent “business rates deserts” in some parts of the country
The six months empty rates relief, received by the industrial and warehouse sectors, should be extended to the retail and offices sector
Plant and machinery orders should be reformed with those parts that are an integral part of the trade process exempted from business rates, encouraging investment. Reform should also support a greener agenda- encouraging investment into new forms of heating/ environmentally friendly systems by making these rates exempt.
We need more frequent revaluations, so rates better reflect property values. The government is proposing three yearly revaluations- we would like to see these annually.
We need an overhaul of CCA, the disastrous appeal system, where waiting times to have appeals heard is getting longer and longer.
The VOA should be properly resourced to deal with more frequent valuations -so the burden of administration is not further placed on businesses
The Government needs to take a proper look at Local Authority financing – any shake up to the business rates system must “recognise the importance of this income stream to fund local key services” (Local Government Association).
And on the immediate front:
With CPI inflation now confirmed at 3.1%, we need a rates freeze to offset the £1bn hike expected in rate bills in England next year, particularly given over a quarter of this will be shouldered by the be-leagued retail industry, already on its knees due to the pandemic.
The Government should pay out the 1.5 billion Government Business Rates Relief Fund promised last March, when the Chancellor ripped up the Rating handbook and declared Covid-19 related MCC appeals invalid, dashing the hopes of hundreds of thousands of businesses who were appealing their business rates. So far not a penny of this fund promised instead has been distributed.
Webber continued, “The industry agreed all these points. Why is it taking so long to get the government to listen? With the Autumn Statement this week, it is disappointing to learn that we may be ignored again.”
Plugging the Gap
One of the stumbling blocks has been how to plug the gap any reform would create from the £26 billion currently collected. On this the industry has been debating with suggestions including:
other tax options such as an online sales tax or a tax on delivery charges
reform some of the current loopholes which have created business rates deserts in some parts of the country, or which give tax breaks to second homeowners who claim reliefs through claiming such properties are small businesses.
a digital tax on the global tech giants - this now looks like it’s been kicked into the long grass for two years, following the government’s global corporation tax agreement. But as 2023 is the date of the new revaluation, could the government consider a digital tax implemented then?
A re-look at council tax, a system that has not been revalued for nearly 30 years, and which is totally out of kilter with current house prices or a fair reflection of current values.
“We do not believe in the total abolition of business rates -the tax provides an easy and manageable way to collect tax and, as a physical and property-based tax, one that is difficult to evade. More countries are introducing a property-based tax like the business rates system that we have in the UK, than are doing away with it.
But over the past 30 years various governments have over-complicated the system, making it more opaque and increasing the level of this tax disproportionately. As a result, there has been a growing chorus of criticism.
The problem is that if nothing is done to reform business rates, we’ll be cooking the goose that lays the golden eggs as more businesses struggle or go under and local finances will be even further impacted, particularly in the poorest parts of the country.
“The Chancellor promised he would respond to the consultation on Business Rates reform this Autumn and he has a real chance in the Budget to take the bull by the horns and introduce some key reforms that will put the Prime Minister’s Levelling Up agenda into practice. It will be massively disappointing if he ducks this issue yet again.”
