Santa came early last week thanks to stamp duty reform and the promise of the same for business rates.
That’s what some newspapers suggested, anyway. But just as supermarkets hike up prices during summer at remote local branches to then legally claim mince pies or champagne are “half price” come Christmas, so business rates are also a bit of a fix.
Thousands of firms across the country remain under threat because rates are tied to top-of-the-market rents – a revenue stream the chancellor cannot afford to lose.
Last week’s Autumn Statement made a bid to right some of the system’s wrongs but, as ever, the devil was in the detail.
During his speech, Osborne neglected to mention that from April 2015, appeals will not be backdated, which could lead to a stampede before the deadline. Currently, any reduction achieved through a successful appeal can be backdated to 1 April 2010.
There’s little logic behind this change, especially considering the Valuation Office Agency already has a huge backlog of cases, of which the chancellor promised, in 2013, 95% would be cleared by next July. We estimate that at the current rate, there will still be more than 60,000 outstanding. With this new change, the problem could be far more severe.
Osborne also announced a cap in rates rises of 2% – but only for small occupiers. This means larger occupiers (with a rateable value over £18,000 regionally and over £25,500 in London) will have to pay roughly 2.3% more. In London this is as well as the Crossrail and City of London supplements.
If the chancellor had seriously wanted to help he could have measured the increase using CPI rather than RPI, which would have reigned in increases at only 1.2%.
The only actual certainties from the Autumn Statement concerned the newly announced review – the third in 14 months. We’re still waiting for the results of the other two (on avoidance and administration). But what’s clear is this new shake-up won’t be completed before the general election.
A proper review will mean biting a few rather large bullets: should plant and machinery be valued or not; should the smallest firms pay rates at all; and how should Amazon and the like be treated? Retailers may argue Amazon’s sheds should be taxed as shops. Industrial landlords (and web retailers) will see it differently.
One area where most parties agree is around annual revaluations, to ensure rates match changes in values and rent in different areas at different times.
Of course, given the range of rateable buildings, one sensible way to do this is to exempt small properties from the rates charge. Small properties make up two thirds of the entire list but pay just 6% of the bill – meaning the chancellor could save sacks of cash on appeals and collection by letting the VOA concentrate on getting the other 94% right. More sophisticated computerised mathematical modelling could be used by the VOA more effectively and would make a lot of sense, particularly given the huge cuts to its budgets.
With an annual pull of around £26bn, rates are one of the Exchequer’s most lucrative tax takes. Any revaluation is currently just a reapportionment of that current pot. It is understandable that the chancellor does not want to jeopardise this sum, but real reform is needed, not just spin.
As a Christmas cracker joke might say: George Osborne. He’s nothing like Santa, really. Despite all the handouts he appears to give, really he just Claus it all back.
Debbie Warwick is partner and head of business rates at Daniel Watney
