The Chancellor announced today in the Spring Statement that he is "helping businesses by bringing the next Business Rate Revaluation forward to 2021 and that revaluations would then be every three years rather five", enabling a fairer reflection of rental values. "That is all very well and good" says John Webber
Head of Business Rates at Colliers International, " but it does nothing to help those businesses, particularly the retailers who are struggling with the system today." And " the change from a seven year to a five year, then a four year and finally a three-year revaluation system, only underlines how the Government has finally realized how disastrous the seven-year 2017 Revaluation was." he continued.
Webber believes the Chancellor has missed a trick in his Spring Budget by failing to properly tackle the issue of business rate reform, leaving many businesses and retailers out to dry, particularly as the 2018/9 rate bills for 1st April start to hit home.
He points to the number of retailers who have been suffering from their higher rate bills following the 2017 Revaluation with some posting lower financial results and others either cutting their number of stores or even going into administration- such as Toys R Us and Maplin earlier in the month. And the pain is not just being felt in the retail sector, as the problems of Prezzo, Jamie’s and Byron well show.
“Business rates is obviously not the only reason retailers, pubs and now casual dining restaurants are struggling, “says Webber, “but it certainly is a factor. Toys R Us was struggling with a rates bill of £22m a year and it finally went down because it could not pay a £15m Vat bill”.
The fact that trade bodies such as UK Hospitality, Camra and the British Beer and Pub Association have been so vociferous in asking the Chancellor to reform the business rates system bears out Webber’s call. This week a letter was sent to Philip Hammond urging him to reduce, “the unnecessary costs of doing business” to avoid further closures and job losses from a sector “at tipping point”.
Webber believes the consequences of the Government’s decision to delay the business rates revaluation to 2017 and to introduce the policy of transition is coming home to roost. “Some businesses, particularly those in London saw massive rises in their rates liabilities, some of which they needed to pay last year, but with the second big uplift coming this year, in addition to a 3 % inflation rise, they will be knocked for six.”
For example, a store seeing a 100% rise in their Rateable Value in the Revaluation, as experienced by several London stores, would have seen this translate into a 42% rise in their rates bill last year plus another 32% rise in their bill this year (plus 3% inflation). " In today's market place that's a lot to cope with. " says Webber. " And when you add the Crossrail supplement on top, you can see why some businesses are struggling. "
“On the other extreme, retailers and restaurant operators, in less affluent areas who should have seen relief from the Revaluation and a drop in their rate bills are still not benefitting, due to the fact that it takes five years of “transition” before they are allowed to pay their bills at the new revalued level. By delaying business rates reaching their true levels, retailers and restaurant operators and pubs in such areas have been forced to pay for the better ones for too long.”
According to the Chief Executive of UK Hospitality, pubs and restaurants alone are therefore paying £1 billion a year more in rates than they should be.
So, today's announcement is " Just a drop in the ocean" says Webber” It's like putting a plaster on a gunshot wound and certainly won’t stop the pain being felt today."
So, what is the solution? Some commentators have called for a cap in business rate bills, but Webber thinks that is naïve given the system needs to be revenue neutral and must still pay for public services. Instead he calls for a proper business rate review as seen in Scotland undertaken by Ken Barclay last year, looking at the multiplier and the whole system of reliefs and who funds the system.
Webber believes if the multiplier (against which the rateable value of the property is multiplied to give the final rates bill) could be reduced to say 34 p in the £1, as it was in 1990, many of the extremely high rating bills would be diminished into something businesses could meet.
“In 1990 the multiplier was 34 p in the pound. It is now 50 p, which means an effective 50% property tax. This is not sustainable for many businesses, particularly when it comes on top of the most dramatic Rating Revaluation (2017) of the century. “
Webber believes any review should also look at the system of reliefs that have created business rate deserts in the country (where due to the system of small businesses reliefs, some businesses are paying no business rates at all for the services they receive). He also thinks any Review should look at business rate practices abroad and learn from the best practices in place.
He also believes a Review should look at the system of appeals.
CCA (the new business rates appeals system) has been described by Webber, but also by many other commentators, as the “car crash ready to happen” since it has introduced an over complicated appeal system that few can navigate. Only by looking at the statistics over the first 12 months does the enormity of the pile-up become clear. Only around 12,000 properties have begun to check and challenge their rating assessments and currently only one has actually reached the appeal stage. “Given that there are in the region of 1.8 million rateable hereditaments, these figures suggest there is a 99.7% acceptance rate of the figures in the list- an approval rating that would be hard to achieve in a North Korean election!” says Webber.
He continued, “It is naïve to think the Government can afford to reduce the £25 billion pot it receives from the business rates levy, but it is in everyone’s interests that we properly reform the system so that every business pays something for the services it receives from the local community and the rate burden is not purely on a few that increasingly can’t afford it. And it also is essential that businesses have a true and fit for purpose appeals system, if they believe they have been assessed unfairly. “
“We need a proper Ken Barclay-type review into how we avoid the business rates deserts and the retailers’ demises that are becoming more and more prevalent. We call for a grown-up discussion and debate about the best solution going forward, not the “head in the sand” approach” that the Government has demonstrated to date. Today's Spring Statement was sadly no exception.”
Colliers Manifesto for Business Rates Reform includes:
1. Increase funding for VOA in order to deal with existing appeals’ backlog;
2. Release VOA from pressure exerted by local councils and HM Treasury;
3. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
4. Root and branch reform of current business rates exemptions and reliefs.