Since I last wrote for EG, we have had the Spring Budget, the end of the 2017 rating list and start of the new 2023 rating list, and seen a new Non-Domestic Rating Bill begin its way through parliament.
So where does that leave businesses considering their rate bills?
Spring Budget
The Spring Budget was a disappointment. The chancellor gave little comment on business rates, purely announcing there would be:
1. Business rates support in new investment zones, which we expect to be subject to subsidy limits.
2. Increased business rates retention – expanding the local retention of business rates to more areas.
3. A clampdown on business rates avoidance and evasion – for which we await further details.
Disappointingly, the chancellor said nothing about freezing the multiplier next year (2024/25). Although he predicted inflation to be 2.9% by the end of the year, business rates rises are decided on consumer price index levels at the end of September – which are likely to be around 5%. This means businesses will most likely be seeing a 5% rise in their rates bills in April 2024.
None of our other calls for reform – such as reducing the multiplier, extending retail reliefs post-2024, reforming the relief system, extending empty property rates relief, annual revaluations or addressing rogue rating companies – were even touched on.
The chancellor spoke of creating a pro-business tax regime that would be the envy of Europe. Yet the failure to reduce the multiplier means this has been the first time a new list has started with a multiplier over 50p. Nowhere else in Europe do businesses pay half the rent of their premises in property taxes. This is unsustainable and deters new investment in businesses.
2023 revaluation
The end of the 2017 list saw businesses racing to get their appeals in before the cut-off date. Although no figures have been announced yet, we saw a tsunami of appeals lodged just before 1 April 2023.
In terms of the new list, as I wrote last time, this will overall benefit the retail sector, which is seeing an average 10% decrease in rateable value. Large department stores and hypermarkets will see drops of 30-40% in their rates this April. Worst hit is the industrial sector, which is seeing on average a 27.1% increase in RV. RVs in the office sector have seen an overall rise, particularly in city centre offices. For some offices, situated in more secondary locations and of grade-B specification, RVs will have either remained the same or seen only small increases.
We urge businesses that are unhappy about their RVs to consider making representations to the VOA now, as the appeals process remains long and drawn out. Not only that, but businesses in the retail and hospitality sectors will find their current reliefs withdrawn next April – so, if they have a query on their assessment, they should not wait until relief is rescinded.
Non-Domestic Rating Bill
The Non-Domestic Rating Bill will have its second reading in the House of Commons on 24 April.
On the surface, the changes proposed look positive. The Bill states there will be more frequent revaluations and announces measures to support decarbonisation and investment in property, including a relief for low-carbon heat networks and the new 12-month Improvement Relief from April 2024. These are certainly a move in the right direction – although we would prefer annual revaluations and believe limiting the new relief for only 12 months will do little to encourage long-term investment.
Closer inspection, however, brings some concerns about the Bill, since it represents a complete change in terms of the obligations on the VOA – obligations which are now to be put on the ratepayer.
For example, there are new requirements for the annual provision of information and the “duty to notify”, whereby businesses will need to provide updates on rents and lease information as well as trading information, even where there have been no changes. This will be cumbersome.
It will mean an additional 700,000 businesses, which currently pay no business rates due to reliefs, will have to send information to the VOA in a bureaucratic exercise that will not result in any increase in the business rates tax take – just an administrative headache. This new regime is also backed up with penalties for failure to disclose properly or on time, including fines that could run into tens of thousands of pounds, or imprisonment for false statements. And this confusion may put small businesses even further at the mercy of rogue rating companies. The government really must regulate the profession.
Meanwhile, no similar obligations have been placed on the VOA to produce its assessments quickly nor to explain them. There is no timetable for its move to greater transparency. The Bill seems to be one way only – and not to the advantage of businesses.
Perhaps even more concerning is the clause in the Bill that removes the power of the ratepayer to pursue an appeal on the grounds of a material change of circumstance, as a result of government legislation.
While this presumably was put in place to protect the government from a repeat of the flurry of Covid lockdown MCC appeals (which it effectively outlawed) in possible future pandemics, this has much wider implications. For example, the smoking ban in pubs caused many publicans to lose business and thus appeal their business rates on grounds of MCC. This would not be allowed in future.
Similarly if the government changed the law on EPCs and buildings are not allowed to be let because they don’t meet the right criteria, there would be no opportunity to appeal against business rates.
These implications are seriously worrying and we will be lobbying MPs to help challenge the Bill in its current form.
Must try harder
The Bill overall fails to say anything about tackling the real issue with business rates – that it is just too high a tax on business. Nor does it fulfil the Conservative manifesto pledge to “cut the burden of tax on business by reducing business rates”. Given the Office for Budget Responsibility is forecasting that income from business rates will rise to nearly £36bn by 2027/28 (from £28.5bn in 2022/23), this is disappointing.
Last time I assessed the government’s business rates strategy, I gave it a C+. With these latest announcements we are sadly back to C-.
John Webber is head of business rates at Colliers
