As Revaluation 2023 looms, the government can no longer afford to brush business rates reform under the carpet. The system which provides £26bn (net) for local authority funding is not fit for purpose and, with a new revaluation in April 2023 approaching, decisions need to be taken now if businesses are to be encouraged to expand and invest rather than close or downsize their bricks-and-mortar estate.
We have long been campaigning for change. Having launched our Business Rates Manifesto with EG in August 2018, we have now revised it and are petitioning MPs on both sides of the house to listen. The government should have the following 10 key action points on its agenda.
1. Remove downwards transition
This will mean rate bills immediately reflect fallen rental values, rather than take three years to do so. The current system penalises businesses that have seen rental levels fall the most, since, under downwards transition, they will pay more than their fair share of the rates bill for the duration of the rating list. Given current inflation levels, we estimate that if downwards transition is implemented retail businesses will pay £2.68bn more in business rates than they should in the three years of the new list. This could be disastrous for the high street, particularly in less affluent towns. There is no downwards transition in Wales or Scotland so why is it considered acceptable in England?
2. Address the multiplier
The uniform business rate used to calculate rate bills should be rebased to a sensible level that businesses can afford. Currently at more than £0.51, it is just too high, and should be re-based to £0.34, its historical level. At the very least the multiplier must not increase in the 2023 revaluation, however high the inflation figure is.
3. Stagger upwards transition
This would restrict increases to those businesses that have seen significant growth in values, such as the logistics sector. Given the pressure on business from spiralling costs, wage growth, energy costs and inflation, no business should have to pay more than a 15% rise including inflation. For smaller and medium-sized businesses, limit increases to no more than 5-10% including inflation.
4. Reform of the reliefs system
Re-basing the multiplier to something affordable means the whole question of the myriad reliefs can become simplified and resolved. Reliefs are often a product of a multiplier that is too high, and the more relief given in turn puts pressure on increasing the multiplier, creating a vicious circle. Small business rates is vital to support the economy and local businesses while the multiplier is so high. However, many reliefs have been handed out over the past 30 years to satisfy short-term political and not economic aims and, in some places, we have business rates deserts. We believe reliefs should be reviewed at least every three years.
5. Extend empty property rates relief
The significant amount of long-term empty commercial property in England is due to a lack of market demand and long-term socio-economic factors. The six-month empty rates holiday should be extended from the warehouse and industrial sectors to include retail and offices.
6. Introduce annual revaluations
This would mean that assessments reflect values at the antecedent valuation date more accurately during the life of a list, reducing the likely significant shift in liability following a revaluation. This provides greater certainty for businesses. Once a short period is established between revaluation cycles any transitional scheme is unnecessary
7. Review plant and machinery
There should be a wholesale and then regular review of what is or is not rateable in relation to plant and machinery. All plant that is an integral part of the trade process should be exempted from business rates, as should investment in new technology that makes businesses more green/ sustainable. This would allow the rating system to complement government policy and targets.
8. Reform the appeals system, providing more support to the Valuation Office Agency
Recent tinkering with “check, challenge, appeal” and removing the check part has only added to the confusion of this ill-equipped system and placed more of an administrative burden on ratepayers. The system should be transparent, easy to access and allow appeals to be resolved in 12 months. The request for the annual provision of information from the ratepayer, not only confirming physical details of the property on an annual basis but updates on rent and lease and trading information, will also pass a significant bureaucratic burden onto the ratepayer which is neither needed nor healthy. The current system of appeals is not fit for purpose – the lack of appeals in the system is not an endorsement of the values but a product of the complexity of the system. Only those companies that can afford professional advisers get to the right answer.
9. Take a proper look at local authority financing
The government must investigate new funding sources for councils as confidence in the current system dwindles. We have already mentioned an online sales tax but the government should look at council tax funding too.
10. Register of rating advisers
A body similar to the Financial Conduct Authority could regulate against the cowboy and criminal element that prey on businesses that do not understand the complicated process of dealing with appeals and reliefs. Businesses need to get the best advice from professionals.
The time is now
The government has a real opportunity to introduce key reforms to the business rates system – a system which, in its current form, is not working. Over the past 30 years, various governments have over-complicated this tax, made it more opaque and increased its level disproportionately, leading to a growing chorus of criticism and contributing to destroying the high street.
We need a well-managed and transparent business rates system that supports growth, not hinders it; and we need it now. That is why we are campaigning both parties. Leave it too late, and the government may find the golden goose of business rates really has been well and truly cooked.
John Webber is head of business rates at Colliers
