3 minute read
Executive Summary
Robert Hayton Head of Business Rates
The cries for “business rates reform” throughout 2018 culminated in a widely reported ‘crisis’ engulfing our high streets. The UK high street has certainly received its fair share of media attention, and rightly so, but it is important to remember that Brexit uncertainties, coupled with high levels of tax, are also taking their toll on our manufacturing and service industries.
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The main issue for businesses across all sectors is not necessarily the mechanics of the rating system, but the eye-watering amounts collected by Local Authorities - with revenue in England alone up £6.04 billion since 2010/11.
Lowering property taxes for companies through their business rates contribution would arguably result in a more even-handed distribution of overall business taxation, rather than lowering corporation tax even further.
A changing economy
The current business rates system was created almost 30 years ago, before the advent of online shopping and the existence of a substantial digital economy. Traditional bricks and mortar retailing is, by definition, property-intensive and their reliance on property leads to a higher tax-to-turnover ratio compared with online only. There is a growing consensus of opinion that the tax playing field should be levelled and, as the UK has the third largest e-commerce market in the world, there are calls for the Government to develop a coherent approach to taxing the digital economy, ring-fencing any additional revenue raised.
The 2017 Revaluation will only gradually alleviate the cost pressures for those businesses with large premises who witnessed their property values plummet. Removing downward transitional relief, potentially paid for by a small supplement on all bills, would result in an immediate tax stimulus to the depressed regions where property-values have been in decline. Where local economies are struggling and rental values fall significantly, it makes sense that businesses should benefit from the full tax reduction at Revaluation to avoid a contrary position where some premises are paying a tax rate of over 100% of a property’s estimated rental value.
There is nothing fundamentally wrong with business rates
Business rates are a tax on physical property, calculated by reference to rents paid on a certain date. It’s over three years since the then Chancellor, George Osborne, coined the expression “devolution revolution”. Whilst sound-bites come and go, we are well and truly on a path to localism and, by 2020/21, Local Authorities in England will retain 75% of all business rates raised locally.
Executive Summary
Business rates are a tax that supports the long term stability of the economy by providing sustainable revenues. These revenues fund public services in a less distorted way than other taxes. Business rates are difficult to avoid and easy to collect, with a current collection rate of 98.4%. It is a tax that is here to stay, therefore the priority in any changes to the system must focus on fairness and predictability.
An evolving system
Meaningful change is, however, happening, albeit slowly and on a piecemeal basis. At the end of 2010, 293,019 properties were in receipt of 100% small business rates relief, compared to 655,970 at the end of 2017. Government’s decision to double the threshold at which businesses pay business rates, from a Rateable Value of less than £6,000 to £12,000, has seen the number completely exempt from paying business rates more than double. An undeniable boost for smaller businesses.
The next Revaluation has been brought forward to 2021, based upon open market rental values on 1st April 2019 - with market corrections through recent CVAs and rent reductions becoming a consideration. Future Revaluations will happen every three years from 2024, which should bring some stability to Rateable Values and help to temper future volatility. From April 2018, rates increased in line with the lower CPI measure of inflation rather than RPI.
The Chancellor missed a golden opportunity at the 2018 Autumn Budget when announcing a £900m cut in business rates. Great news for independent retailers with smaller premises, yet the reduction does nothing to help those major retail and hospitality businesses who are reducing their estates and headcount, often citing high business rates as a contributing factor. Neither did it provide any relief to other sectors of the economy grappling with what remains to be the highest property taxes across the European Union.
£6.04
BILLION
REVENUE INCREASE SINCE 2010/11
98.4%
COLLECTION RATE
