The 2017 rates revaluation and business rates reforms have become an emotionally charged issue. Now that London businesses are faced with bigger rates bills, it is portrayed as scandalous.
However, the real scandal is that the revaluation did not happen sooner.
The reason rates liabilities in London are increasing is that London rents have risen. The delayed revaluation means London has effectively been subsidised by businesses in regional locations for years.
Regional businesses have struggled to pay rates based on pre-recessionary rateable values since 2010, while providing jobs, amenities and services in parts of the country hit hardest by the financial crisis.
Disproportionate rates liabilities have come at a cost, particularly for town centres. They increase the number of empty shops and affect civic pride and local identity.
Deep reform of the rating system as a method of taxation is needed. In the omni-channel age – when many businesses operate from a cloud, or at least across borders – will levying one of the highest fixed property taxes in the world make post-Brexit Britain a place that is open for business?
The government is expected to play to the gallery in the upcoming Budget by tinkering with rates relief for the smallest businesses. This misses the point. Instead of tinkering, we need a wholesale reappraisal of rates liabilities, which often fail to tax economic activity fairly and have ballooned by nearly 50% relative to rateable values since 1990.
If the government is really serious about helping the high street, it should commit to wider reform, while in the short term making the best of the current failing system.
“Downwards transition” should be scrapped immediately. Tying businesses to their old, higher rates liability for up to five years continues to over-tax those hit hardest by high rates bills.
Together with Revo, the Scottish Property Federation and Eric Young and Co, Ellandi successfully lobbied the Scottish government to ensure that transitional relief was not introduced in Scotland in 2017. Northern Ireland and Wales have no “downwards transition” and it is now time to take the rest of the UK’s lead.
The government should also think again about its proposed “Check, challenge, appeal” reforms. They are a thinly veiled attempt to make successfully appealing incorrect assessments significantly more difficult.
The deliberately vague “reasonable professional judgment” test at the very end of the process renders it almost pointless, meaning a sharp reduction in accountability.
Philip Hammond has recently stated he is “in listening mode” following a media frenzy over business rates injustice. Having seemingly ignored the majority of stakeholder feedback on business rates reform to date, this a positive step.
It is imperative that we use this chance to push for proper reform of a system of taxation that has lost its connection with turnover and profit. Ironically, it is the long-overdue attempt to realign business rates with these fundamentals that has led to an opportunity for greater change.
Jonathan Cole is an investment manager at Ellandi
