COMMENT In the six months since our last update, we have been slowly emerging from the clutches of the pandemic. How have the government’s measures towards business rates, in terms of grants, appeals and reform, really held up?
Grants/relief funds
The main talking point in terms of support to businesses is the £1.5bn Business Rates Relief Fund announced last March, targeted at businesses affected by the pandemic outside retail, hospitality and leisure, “based on the economic impacts of Covid-19 and not on estimates of the impact on a property’s value”.
In a parallel announcement, the government took the unprecedented step of ruling out any appeals against rates bills based on a material change of circumstance due to the pandemic, causing an industry outcry. We were vocal that the outlawing of Covid-19 MCC appeals damaged the integrity of the rating system, leading to large groups of occupiers missing out on the reliefs they were relying on. The £1.5bn fund offered instead would not scratch the surface for businesses struggling to pay last year’s rates bills.
The situation has deteriorated. The government said: “We will work with and support local government to enable ratepayers to apply as soon as possible this year, once the legislation relating to MCC provisions has passed and local authorities have set up local relief schemes.”
However, the legislation relating to MCC provisions has still not passed through parliament six months on, with signs it will not be passed until early 2022. And neither the government nor the billing authorities have engaged with the rating industry or set out any guidance for businesses to apply to receive this relief.
It is rumoured that the government will leave each billing authority to draw up its own guidance for distribution of the fund, which could cause carnage. We know from experience authorities will have different interpretations of guidance, so whether businesses receive relief or not may be a postcode lottery.
By the time the billing authorities get their plans together it will be nearly two years since Covid-19 set in – a long time for businesses adversely affected to miss out on the support they need. What state will they be in by the time the reliefs are actually paid out?
In terms of the grants paid to businesses forced to close, most of these schemes have now ended, although based on the last statistics some local authorities failed to pay out all the money they received. Presumably the balance has now returned to central government. Some Additional Restrictions Grants remain available on a discretionary basis from some local authorities, but these are few and far between.
Business rates holidays and rates freezes
The 100% business rates holiday for retail, hospitality and leisure ended on 30 June and these sectors then received an up to two-thirds rates holiday until April 2022. This measure only really supports the smaller businesses due to the £2m cap per business, limiting reliefs for many larger companies. A smaller cap of £105,000 applied for those that could remain open during the pandemic.
The measures did little to help businesses in other sectors that had not benefited from the rates holidays but had experienced genuine hardship, including the aviation industry, manufacturing (particularly those that supply retail/hospitality and leisure), telecoms and many offices businesses.
In the recent Budget, the government announced a rates freeze by maintaining the multiplier at current levels to avoid the £1bn hike expected in rate bills in England next year. With the consumer price index at 3.1%, we don’t think the government had an alternative – for many businesses, a rates bill rise would have been the last straw.
The chancellor also extended support to RH&L businesses by granting a 50% discount to rate bills for 12 months after April 2022. But again, by limiting reliefs to £110,000, these measures do little to help the bigger retailers – the ones who make the big decisions on store closures and maintaining jobs. At most, these measures are really sticking plasters for these sectors, which will still face an unfair rating system in 2023 when new bills arrive.
Appeals
Latest “check, challenge, appeal” business rates figures (as of 30 September) show that, since 1 April 2020, just after the start of the first lockdown, 446,620 checks were registered by businesses against their rates bills – most of which had been affected by Covid-19.
This means nearly three quarters of the 605,530 appeals registered since the 2017 Rating List began were registered in the past 18 months, illustrating the disruption the pandemic has caused to hundreds and thousands of businesses.
The outlawing of MCC appeals (outlined above) was presumably because appeal numbers were too high for the Valuation Office Agency to cope with. But this unprecedented action of ripping up the rating rule book retrospectively is concerning for all struggling businesses.
Elsewhere, the appeals system remains unwieldly. Of 112,260 challenges to the 2017 list to date, there are still 63,780 outstanding. Three months ago, this figure was 63,800.
The VOA does not have sufficient resources for an efficient system and CCA is clearly not working.
In the notes accompanying his Budget statement, the chancellor seemed to recognise this and said the system in its current form will be phased out by the 2026 revaluation.
There are outline plans to remove the check process and for ratepayers to go straight into a challenge. This will have its own issues. The onus will be on the ratepayer, who will have a duty to notify the VOA of any changes to occupier and property characteristics and to provide mandatory rent and lease information on an annual basis. This will be an additional administrative burden and expense for businesses.
The government also announced that the draft list will be published three months before it becomes live, not the usual six months. Ratepayers have only a three-month window to appeal. This is worrying as it leaves little time to review valuations and submit challenges on receipt of the draft list values and could lead to increasing number of appeals, as we have seen in previous rating revaluations when time limits have been imposed.
Revaluation
The next revaluation date in England is confirmed as 1 April 2023, based on property values as of 1 April 2021, and from then there will be three-yearly revaluations. This is certainly a positive move compared with the current situation (with rateable values based on rents in 2015). However, the VOA’s insistence of a two-year gap between the antecedent valuation date when values are assessed and when the list becomes live will still lead to a mismatch between rental values and rates bills. This situation will be made worse if we maintain a downward transition. We believe in annual revaluations or, at the least, a one-year gap between the AVD and the list going live.
Reform
After four delays in the past year alone, the government finally gave its response to the consultation on business rates reform in the Autumn Budget.
There were some positive reforms, particularly the rates relief for businesses investing in “green” property improvements, such as solar panels and heat pumps.
Previously there had been no incentives for companies to make such investments as causing the property’s value to rise caused the rates bill to rise too. We believe that while this announcement may not be a “make or break” in the decision to build or refurbish in an environmentally friendly way, it could save tens of millions of pounds over time and benefit landlords and tenants alike. The detail may be difficult to implement but further consultation is expected next year.
The chancellor also announced a new rates relief for property improvements for a 12-month period. While we support this, 12 months is a very short time in the life of a property, so the benefits are limited.
The chancellor also stated clearly that he is determined to maintain the £26bn net tax take from the business rates system. The industry’s cries for a reduction in the tax by reducing the multiplier to a percentage more palatable than the current 51p and for a proper reform of the reliefs system – to avoid business rates deserts and to close loopholes – went largely unheard.
There was no extension of empty rates reliefs and no long-term rebalancing in favour of the physical retail sector.
The call for the consideration of other taxes to reduce the dependence on business rates such as an online sales tax are to be the subject of further consultation.
Most commentators felt the Budget was disappointing, doing little to sort out the underlying problems with the system or to even out the burden on physical retailers – yet again.
Unless the issue of removing downward transition in 2023 is dealt with soon, high streets will continue a rapid downward spiral. The elephant in the room – the amount that this tax brings in – must be dealt with or anything else is rearranging the deck chairs on that sinking ship.
Grading the government
Last time I gave the government B+ for its measures, but the actions in recent weeks do not merit an upgrade. There are some glimmers of sense in what has been done, but overall, the failure to distribute the promised £1.5bn relief fund to businesses that struggled during the pandemic, plus the failure to deliver the much-needed fundamental business rates reform this autumn, have been underwhelming to say the least. I’d send this paper back with a C- and “please do better next time”.
John Webber is head of business rates at Colliers
