They say a week is a long time in politics – and you can say that also applies to the world of business rates. In little over a month, we have had a new prime minister and chancellor, a far-reaching Autumn Statement and the publication of the first draft list for six years for the 2023 revaluation. Where does that leave businesses considering their rate bills?
The Autumn Statement
The Autumn Statement certainly gave us and the high street a pleasant surprise. By freezing the multiplier for 2023/24 – at 51.2p and 49.9p (for small businesses) – the government said rate bills will be 6% lower than without the freeze, before any reliefs are applied.
Equally far-reaching was the decision to abolish downwards transition for those businesses whose rateable value has decreased following the revaluation, allowing ratepayers to see any reductions to their rate bills immediately when the new list begins in April.
This is something we at Colliers have long been campaigning for and the decision is a major boost for the retail sector. If implemented, we estimated downward transition would have cost the sector an extra £2.7bn more in rates bills than they should have paid during the three years in the list.
Another answered prayer was the introduction of upward transitional relief caps supporting ratepayers facing large bill increases following the revaluation, with £1.6bn of support funded by the Exchequer. These “upward caps” will be 5%, 15% and 30% for small, medium and large properties in 2023/24, to be applied before any other reliefs or supplements.
Also announced in the Autumn Statement was the extension and increase of the current business rates reliefs for retail, hospitality and leisure sectors from 50% to 75%, up to £110,000 per business in 2023/24; additional support for small businesses; and the decision not to introduce an online sales tax. The latter announcement has had mixed reviews and the government will respond on its consultation separately.
Overall, the Autumn Statement was positive for business. By removing downward transition, the government seems to have finally recognised that the business rates system cannot be revenue-neutral without causing significant hardship. Rate bills will better reflect the economic situation and any drop in market rents. Businesses will now be able to sensibly plan ahead for 2023.
The draft list
Hot on the heels of the Autumn Statement was the publication of the draft list for the 2023 revaluation. This revealed that UK retailers will be the biggest winners from the new list, whereas operators of large warehouses and logistics/distribution space will be the losers and see the biggest jump in their rates bills when the new revaluation comes into force next April.
The retail sector will see on average a 10% decrease in rateable value in the next list – the only sector to show a decrease. The decision to freeze the multiplier and remove downwards transition was good news for the sector, which will be seeing an immediate reduction in rate bills in April. This will not just be on high street locations but on retail parks, shopping centres and other out-of-town locations.
And the 10% decrease in RV is an average – in some retail locations, RV reductions of 30-40% are occurring. In Oxford Street, W1, for example, RVs have fallen by approximately 30%, at the Bull Ring in Birmingham they have dropped by around 40% and at Manchester’s Arndale Centre by 34%.
Large department stores and hypermarkets are among the biggest winners of the revaluation. Selfridges saw its RV drop by 45% from £30.5m to £16.8m with the new list, allowing its rate bill to correspondingly drop 45% to £8.6m from next April.
Meanwhile, the industrial and logistic sector was the hardest hit in this new revaluation, reflecting the higher rents at the time of the antecedent valuation date in April 2021. The Valuation Office Agency has confirmed the industrial sector will show an average 27.1% increase in RV, the largest increase out of all of the sectors. Rises such as at Park Royal, London (up by 30%), Trafford Park, Manchester (up by 30%), or Vertex Business Park, Bristol (up by 45%), are examples of increases in RV of some of the best-quality industrial and distribution space in the prime locations of the country. Some locations are even higher – the RV of Amazon’s warehouse at Tilbury, Essex, for example, has risen by 74% to £12.3m.
However, it is not all doom and gloom for logistics. The upward caps will provide some sort of cushion. Many logistics businesses were aware of the rental growth between 2015 and 2021 and have been preparing for substantial rises. Now businesses in the sector will have certainty to plan for the year ahead.
In general, RVs have risen in the office sector, but not to the same extent as the industrial sector. RVs adopted on city centre offices have generally increased across the country, with the levels of increase varying depending on the location (with prime offices showing the greatest rises). RVs at Fenchurch Street in London have gone up by 21%, in Colmore Row in Birmingham up by 14%, and at St Peter’s Square in Manchester by 5%. For some offices, situated in more secondary locations and of grade-B specification, RVs will have either remained the same or have seen only small increases. Again, this will vary from location to location.
Making appeals
Headline figures revealed are obviously averages and there are still large discrepancies on the list, with the result that many companies should think carefully about negotiating with the VOA before the list goes live on 1 April 2023.
Fortnum & Mason in London’s Piccadilly, W1, for example, has only seen a 5% reduction in its RV, which seems suspiciously low compared with other London department stores.
What is also obvious is that those occupiers and owners of properties that either themselves or via agents made representations to the VOA during the assessment process appear to have been more successful in negotiating lower and more correct values. Given the VOA was assessing properties during the pandemic, when many properties were temporarily closed, or deals were being struck with landlords, a proper assessment was something of a minefield.
We therefore urge anyone who is unhappy about their RVs to consider making representations to the VOA now and to consider the appeal process when the list becomes live next April, since it will be a long, drawn-out process.
We believe this will lead to further reductions in RVs, particularly in the retail sector, and could provide some respite in offices. The VOA has a difficult job but you have to ask yourself a simple question – what would a tenant pay to rent a pub, hotel, office or shop when, on the valuation date of 1 April 2021, they either could not open it or – if they could – there were significant restrictions?
Income expected from business rates
|
Year |
2021-22 |
2022-23 |
2023-24 |
2024-25 |
2025-26 |
2026-27 |
2027-28 |
|
Income (£bn) |
25.4 |
28.5 |
30.3 |
35.2 |
35.4 |
35.6 |
35.9 |
Source: OBR
Where does this leave reform?
Overall, the government’s decision to freeze the multiplier, abolish downward transition and cap the largest rate bill rises is to be praised.
It has been a massive relief that the government finally listened to us and other industry bodies about out-of-control business rates rises and seems to have recognised that the system cannot be revenue-neutral without causing significant hardship.
However, we must not forget there is still massive need for reform – to the reliefs system, to the tortuous appeals process and to using the rates system to incentivise investment in sustainability. There also needs to be greater transparency in the appeals system.
We need a greater understanding about how the VOA makes its decisions, without putting all the burden of proof on the ratepayer. And we need to stamp out rogue agents via regulation.
We also hope the chancellor follows through on his earlier pledge to look at the system as a whole; it was disappointing to hear Michael Gove say recently there will be no time for business rates reform before the 2024 election.
The government needs to stick to its manifesto commitment of reducing the overall burden of business rates.
This year’s list showed a general 7.1% increase in RV and I read with concern in the Office for Budget Responsibility report that the government is forecasting that income from business rates will rise to nearly £36bn by 2027/28 (from £28.5bn in 2022/23 – see table, above), which appears contrary to this pledge and heading in one direction only – upwards.
We must not stop campaigning. There is still everything to play for and we need to call out the government if it ignores us and continues to place sticking plasters on this gaping open wound.
John Webber is head of business rates at Colliers
