Ratings experts have urged the government to seize a “golden opportunity” to revive ailing retail and leisure locations in England through its new consultation on transitional relief.
The Department for Levelling Up, Housing and Communities has launched an eight-week consultation on whether transitional relief should apply for each year of the next revaluation cycle, as well as whether increases and decreases should continue to be capped. It also asks businesses whether a premium should alternatively be added to the uniform business rate to cover the cost of providing relief to those with the biggest revaluation rises.
Several leading figures said the government should scrap caps on reductions, which would create a fairer system, particularly for businesses in struggling regional towns and cities.
John Webber, head of rating at Colliers (pictured), expects retail real estate values to drop by up to 70% next year in depressed areas. He said: “The 2023 revaluation should represent a golden opportunity to revise values down significantly. This could have the biggest effect on retail locations than anything else.
“We could see a massive change in the landscape of the high street. It’s pointless having an exercise of a revaluation if people’s bills aren’t going to change – and inflation will only compound the problem.”
Webber continued: “Retailers are closing shops and people are losing their jobs because in their budget planning for the next two years, they are assuming that the business rates they will be paying from next April are exactly the same or slightly more than they are paying today.”
Webber added that some investors are acquiring retail properties on the assumption that there may not be a downwards transition scheme.
Drop downward phasing “penalties”
Jerry Schurder, business rates policy lead at Gerald Eve, said: “While this may seem a highly technical consultation and thus perhaps of limited interest, it is of critical importance to all businesses, especially those that might expect to receive much lower valuations at the 2023 revaluation.”
The paper suggested that businesses seeing the greatest reductions in revaluation are “best placed” to meet the cost of funding transitional relief. However, this has been heavily criticised, with Schurder pointing out that affected sectors will be “highly offended”.
“They are seeing a fall in their bills because their property values have fallen, reflecting adverse trading conditions, and they deserve to receive their full reductions immediately,” added Schurder.
“Downwards phasing penalties ought to have no place in a modern property taxation system and it is time for them to be abolished. They all but negate the purpose of revaluation, which is to redistribute rates bills to reflect changes in property values.”
Robert Hayton, UK president at Altus Group, agreed: “Asking underperforming sectors and regions to pay more in tax to help subsidise those better-faring economies simply does not support the government’s ambitious desire to ‘level up’ the fortunes of struggling towns and regions left behind.”
Schurder also noted that in previous revaluation cycles, the government consulted with detailed proposals for alternative transitional relief schemes while also issuing draft assessments for the next revaluation – an approach that has been dropped for 2023.
He said the publication of new rateable values should be brought forward to September, along with a further consultation on transitional arrangements, including the precise percentage increases and decreases proposed.
“Businesses called unanimously for far greater transparency from government and its agencies in their responses to last year’s fundamental review of the system but are being led down a blind alley with this consultation,” said Schurder.
Keep caps on increases
Experts said caps on increases should remain in place given that sectors including industrials and logistics could see large rises. Hayton described those as an “important shock absorber”.
But Hayton emphasised that limits on downward revisions should be dropped to “put fairness back into the heart of the rating system” and provide “badly needed respite to respond to changing markets”.
Removing caps on downward transition could be funded by adjusting the new tax rates for the 2023 revaluation when they are reset, according to Hayton – resulting in a “meaningful” tax stimulus for depressed regions.
“The downward aspect of transitional relief is contrary to localism, serving only to deter investment away from regional towns and cities where it is so badly needed, thereby increasing regional inequality,” said Hayton.
“The design of the scheme for 2023 revaluation will reveal how serious the government is about levelling up.”
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