Reading the government’s response to the Treasury Select Committee’s recommendations on business rates is like listening to the ramblings of an alcoholic in denial of a problem. One would think that the TCS was made up of lightweight amateurs – not highly respected MPs that had listened, for over six months, to the best professionals in the ratings industry together with leading figures of business.
The committee produced a highly serious set of findings, much supported by business and the industry. It asked how the multiplier (the UBR, used to calculate actual rates bills) had been allowed to grow from 30% in 1990 to a figure of over 50% today – a rise far outpacing inflation. It stated that the myriad and complexities of reliefs showed that the business rates system is “broken”, pointed out the hardship caused by downwards transition, and was highly critical of CCA, the government’s appeals system which had been brought in without clear testing or so that “public confidence had been eroded”.
And the government response to these findings? Probably as you might expect. Thanking the TSC for its trouble, but denying there is any real problem.
Rose-tinted glasses
Taking the multiplier first, the government’s response was that revenue raised through business rates has fallen significantly in the UK, both as a percentage of GDP and as a percentage of total tax revenue. However, this rather misses the point. The issue is that a rise from 30% to over 50% in the 30-year period far outpaces inflation and has been totally crippling for businesses, particularly those in the retail sector. Without a proper re-basing to a sensible level, this situation will only get worse.
In terms of reliefs, the government denied that the system is “broken” and argued that reliefs “support certain sectors or incentivise particular behaviours”, listing the small business rate reliefs and retail discounts it offers – so that “675,000 of the smallest businesses pay no business rates now”. We would argue that every business should pay something for the local amenities they enjoy, but at a sensible rate. And small business reliefs will do nothing to help save the high street since it is the big retailers that have been hammered by business rates and are the ones making the redundancies. There seems no relief for them.
Turning to downwards transition, keeping bills artificially high over a prolonged period for many businesses is the nail in the coffin for the likes of Beales or Toys “R” Us. Government has said this cannot be removed without removing transition for those companies whose business rates are rising. We would ask, why not? Particularly as rises were brought in quickly over three years but reductions have taken up to five to filter through.
And the appeals system, the “unacceptable” delays and the automated CCA system, brought in without proper testing or consultation with the industry, and which according to the TSC “should have had more functionality than the system it was replacing”. The government response is that despite some teething issues, the VOA is working sufficiently hard to improve things and has targets and a plan that should succeed.
The TSC has made it clear that the VOA “needs to ensure that it is properly staffed to deliver its specialist role”, particularly given the move to three-year revaluations and to deal with CCA. Again, the government is in denial. It claims “the VOA is sufficiently resourced to carry out its functions and remains within budget”, although it does admit the “resourcing of experienced professionals remains challenging”. That’s certainly an understatement in our book.
So, what to make of this? It’s clear we have here another whitewash, another “head in the sand” approach that everything will be okay on the day. There is a promise of a business rates review, but all that is doing is kicking the issue into the long grass yet again.
The Treasury Committee had a review and it made very sensible recommendations. What was the point of all that time and money if the government is just going to ignore its recommendations and pretend everything is rosy?
Certainly, no respite on the horizon any time soon for business rates payers I am afraid – or indeed the struggling high street.
John Webber is head of business rates at Colliers International
