ANNUAL BUSINESS RATES REVIEW England & Wales May 2020
About Altus Group
Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technologyenabled capabilities. Our solutions empower clients to analyse, gain insight and recognise value on their real estate investments. Headquartered in Canada, we have approximately 2,250 employees around the world, with operations in North America, Europe and Asia Pacific.
Altus Group advises on property taxation in the UK, Canada and the United States and has the largest rating team in the UK with 400 dedicated employees, including over 120 specialist Surveyors, across a network of regional offices. Altus Group represents over 55,000 clients, from SMEs to many of the world’s leading corporations, with over £5 billion of Rateable Value under instruction. Altus Group handles more business rates appeals than any other commercial real estate firm in the UK, working across all main property sectors including office, industrial and retail, offering sector specific expertise through specialist teams. The scale of Altus Group’s rating advisory business in the UK generates the volume of quality data required to evidence the value of clients’ properties and challenge assessments made by the Valuation Office Agency at Revaluation. With a combination of scale, expertise and a continuing policy of selective challenge, Altus Group has achieved a success rate of 86% under the UK’s business rates appeal system of Check Challenge Appeal, introduced in April 2017.
altusgroup.com/property
The voice of business As Britain’s leading and largest rating advisory, Altus Group is at the forefront of the business rates debate and we lobby, on behalf of our clients, for positive and meaningful change to the business rates system. Featured more than 2,000 times during 2019 across print, on-line and broadcast media, Altus Group remains the go-to experts for business rates analysis, forecasting and commentary encompassing all sectors of the economy.
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Altus Group has always provided an invaluable and timely level of insight and data on business rates. Altus is extremely knowledgeable and responsive, and I always contact them with the utmost confidence that they will respond quickly with the information that I’m seeking. Dominic Curran, Property Policy Adviser, British Retail Consortium
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ABOUT ALTUS GROUP
2
CONTENTS 2.
About Altus Group
27.
The Number of Pubs Calling Time During 2019 Halves
3.
Contents
4.
Foreword
5.
Executive Summary
6.
29.
The Largest Regional Ratepayers
32.
Transitional Relief
37.
Check, Challenge & Appeal
Covid-19 Support For Businesses In England & Wales
40.
A More Sustainable Future: Carbon Rates Offset
10.
The Next Revaluation
41.
Legislative Change
12.
UK Property Taxes
42.
On the Road to Zero
14.
Business Rates in England & Wales
43.
Empty Rates
17.
Ending Annual Inflationary Rises
44.
2019 Case Law Review
23.
Changes To Local Rating Lists In England & Wales
Information correct at time of publication. 11 May 2020.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
FOREWORD
Alex Probyn BSc, FRICS UK President, Expert Services
January seems a long time ago. In those first days of the New Year we discussed the challenges and opportunities that we would be navigating in 2020. At that time COVID-19 was Coronavirus and it was something that affected other people. For us, 2020 was the year when we would ensure all our remaining clients with incorrect business rates assessments had cases lodged with the Valuation Office Agency. At the start of the year we were waiting for the Government’s Bill, bringing forward the next revaluation period to 2021, to pass into law. This was in effect a formality, but one which continued to cause some uncertainty. We were also anticipating another (!) “fundamental review of business rates” following significant criticism of the system throughout 2019. We have had many reviews over the years and what has been consistent is that nothing ‘fundamental’ changes as a result of them. We
preferred to concentrate on “today’s reality”, so instead of another review, we have been calling for reforms to the existing system that will improve fairness and certainty, while also speeding up the appeals process.
future Rateable Values. This doesn’t remove the need for further reform, but it does create a foundation upon which a fairer system can be built and allows more time for those reforms to be introduced.
Then in March, of course, everything changed. Government put the country into lockdown. Businesses closed and millions of workers began to work from home. Almost overnight, the way the UK uses commercial property changed. Government exempted retail, hospitality and leisure properties from business rates and, using the business rates system provided access to grants to many smaller businesses.
Despite some valid criticism, the Check Challenge Appeal system is workable with the correct approach. However, we had long argued that increased resource must be found before time ran out. As such we were pleased that, at March’s Budget, the Chancellor announced an additional £11.5 million would be invested in the Valuation Office Agency during 2020/21.
Government has done much to help, but the speed of implementation quickly revealed inevitable anomalies and unfairness which Altus Group has worked hard to highlight and correct to the benefit of our clients and the wider business community. There was a bigger problem however: the planned April 2021 Revaluation would have set rates bills for the next three years based on rental values in 2019, before the COVID-19 crisis. So, since March, in conjunction with several leading UK business groups, my team and I worked hard to press the case to Government to withdraw the business rates Bill and defer the Revaluation by a year to April 2022. The fact that the Government has acted upon our advice is great news as it now allows the valuation date to be brought forward to a point in time at which the impact of the lockdown on commercial property values can be taken into account in
The Valuation Office Agency has struggled to meet its targets; being required to do more with less against a backdrop of rising Challenges. I do hope this additional funding, which we pushed so hard for, enables them to quickly address the current backlog. Over the year ahead we will continue to press the Government to make changes to improve the system, in particular reducing the maximum response time at Challenge from 18 months. Our aim has always been to make rates fair for all UK businesses and we believe, with reform to the current system, this aim is totally achievable. UK businesses have endured a very difficult few years with so much uncertainty and need swift support; the Government must step-up further on the promises made to support growth and prosperity especially as businesses navigate their way through the financial crisis caused by the COVID-19 pandemic.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
EXECUTIVE SUMMARY
It’s against this backdrop, over the coming weeks, we will be leading the biggest ever group-based challenge to the business rates system.
Source: Valuation Office Agency
Mar 20
Feb 20
Jan 20
Dec 19
Nov 19
Oct 19
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
Sep 19
Outstanding Business Rate Challenges in England
Aug 19
At Altus Group, we believe the primary focus for the Government should be meaningful reform that can be delivered quickly to benefit ratepayers immediately. Small
A catastrophic fall in demand has resulted in the rental value of many buildings reducing dramatically, causing a structural change in the property market which we believe constitutes a material change in circumstances.
There was a record number of 1,100 Challenges settled in March. That is
Jul 19
The underlying fundamentals of the business rates system are sound. It is a tax on physical property, calculated by reference to market rental values. It supports the long-term stability of the economy, funding public services in a much less distorted way than other taxes. Business Rates are difficult to avoid and easy to collect.
But equally the here and now is more important than ever before, as businesses fight for survival. Whilst the retail, leisure and hospitality sectors have received Government assistance to reduce their business rates bills during 2020/21, many have not – despite COVID-19 affecting all ratepayers.
Small, fully costed changes, which would bring maximum benefit to the ratepayer in the longer term, with fairness at their core. In the meantime, it is imperative that the appeal system rectifies incorrect assessments quickly and more efficiently, as it was intended to. Our real and continued concern is the unnecessary delays created at the Challenge stage of the process.
Jun 19
UK businesses cannot afford another long review that ultimately, somewhat inevitably, fizzles out and nothing changes. Fundamental alterations, let alone scrapping the tax as many have called for, is hard for any Government to implement, even in the medium term, when the tax generated for them is so precious. We need to ensure that the “fundamental review” isn’t a smoke screen for ‘keep it all the same’.
If this trend continues, the situation will become desperate. High volumes of unnecessary cases will be referred to the independent Valuation Tribunal; exactly what the new system was designed to prevent.
The Altus Group Annual Business Rates Review sets out several key fundamental reforms. From ending annual inflationary rises to the tax rate and removing gradual phasing-in of large tax reductions to incentivising, rather than penalising, investments which benefit the wider environment and climate change goals.
May 19
Another year and another review of the business rates system; with Government continuing its plans to publish a call for evidence for a “fundamental review of business rates” at some point in late Spring or the Summer, despite other tax policy consultations being delayed as a result of COVID-19.
Meaningful reform is achievable and within our grasp.
Apr 19
Robert Hayton BSc(Hons), MRICS Head of UK Business Rates
up 47% on February’s 750 settled Challenges and up 72% on the 640 Challenges settled in January. Whilst this is a step in the right direction, more Challenges continue to be made than settled.
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changes, such as those discussed in this review, will revitalise the system and enhance the core essentials of fairness, certainty, swift correction of errors and, over time, affordability.
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COVID-19 SUPPORT FOR BUSINESSES IN ENGLAND & WALES PEGGED TO BUSINESS RATES
ENGLAND The UK Government has put in place a £22 billion support package for businesses in England through business rates relief and business grants.
Business rates ‘holiday’ for retail, hospitality and leisure businesses There will be a complete business rates ‘holiday’ for all retail, hospitality and leisure businesses in England for the 2020/2021 tax year, irrespective of Rateable Value.
Properties closed temporarily due to the Government’s advice on COVID-19 will be treated as occupied for the purposes of granting the relief. Some initial exclusions for relief were removed. Premises closed as a result of COVID-19 restrictions are also eligible for the relief and the rates ‘holiday’ was extended to those in the A2 category - including estate agents, professional services and bookmakers. Nurseries benefit, providing that they are occupied by providers on Ofsted’s Early Years Register and are wholly or mainly used for the provision of the Early Years Foundation Stage.
The expanded business rates retail discount will cost the Exchequer £10.06 billion in lost tax revenues during 2020/2021. 354,670 premises will benefit from the property tax break; worth an average of £28,367 per property this financial year (1st April). Nearly a third of the overall cost of the tax relief, a total of £3.03 billion, will cover the cost of the rates ‘holiday’ for 73,140 firms within the Capital. 7,407 premises in Westminster alone save £943.95 million in total.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
Local Authority
Properties in receipt of expanded retail discount for 2020/21
Westminster
7,407
Cornwall
6,203
Birmingham
5,970
Leeds
4,573
Manchester
4,442
Camden
4,436
Buckinghamshire Council
3,788
Bristol
3,677
Liverpool
3,523
Haringey
3,467 Source: Ministry of Housing, Communities & Local Government
More than a fifth of the overall pot will cover the rates bills for retail, leisure and hospitality firms in just 10 Council areas covering major cities such as Birmingham, Leeds, Manchester, Liverpool and Sheffield.
Local Authority
Cost of expanded retail discount
Westminster
£943,955,235
Kensington and Chelsea
£231,588,141
Camden
£195,322,037
Birmingham
£169,976,817
Leeds
£154,262,360
Manchester
£144,422,979
Liverpool
£128,499,495
City of London
£116,044,705
Hammersmith and Fulham
£115,943,208
Sheffield
£112,806,547 Source: Ministry of Housing, Communities & Local Government
Outside of Westminster and the City of London, Council areas dominated by major shopping centres such as Bluewater, Intu Metrocentre, Intu Trafford Centre, Intu Milton Keynes and Intu Lakeside, will see the biggest average rates savings during 2020/21.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
Local Authority
Average business rates saving per property
Westminster
£127,441
Gateshead
£118,099
Dartford
£83,729
Kensington and Chelsea
£76,407
Blaby
£69,996
City of London
£66,387
Rushmoor
£62,890
Trafford
£61,640
Milton Keynes
£54,671
Thurrock
£54,509 Source: Ministry of Housing, Communities & Local Government
Government Business Grants The Retail, Hospitality and Leisure Grant Scheme provides businesses in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property. Businesses in these sectors with a property that has a Rateable Value up to and including £15,000 will receive a grant of £10,000, while those with a Rateable Value of over £15,000 and below £51,000 will receive a grant of £25,000. Under the Small Business Grant Fund, all businesses in receipt of Small Business Rates Relief and Rural Rates Relief will be eligible for a payment of £10,000. As of 3rd May 2020, £8.61 billion had been paid out of the fund, worth £12.33 billion to over 697,000 business properties.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
WALES The Welsh Government has put in place a £1.4 billion support package for all businesses listed on the business rates register, covering business rates relief and business grants.
Business rates ‘holiday’ for retail, hospitality and leisure businesses A business rates ‘holiday’ has been implemented for retail, hospitality and leisure businesses in Wales for the 2020/2021 tax year with a rateable value of less than £500,000. The Welsh Government has written to all of the businesses affected by the ceiling making it clear that they are eligible to apply for discretionary funding if they have a strong case. A total of 119,872 properties in Wales are liable for business rates with a Rateable Value below £500,000 - with 52,738 of those premises falling within the retail, leisure and hospitality sectors, thus receiving 100% discount, saving £411.81 million in business rates for 2020/2021. The ceiling on Rateable Value results in 167 retail, leisure and hospitality premises in Wales still paying ‘normal’ business rates during
2020/21, a total of £109.89 million. Of the 167 premises excluded, 115 are hypermarkets or superstores (over 2,500m2). They will pay £78.02 million in business rates for 2020/21, whilst 21 large shops (over 1,850m2) will pay £15.74 million for 2020/21.
Government Business Grants The business grants have two components: Grant 1: For retail, leisure and hospitality businesses in Wales, a grant of £25,000 will be offered for businesses in these sectors, with a Rateable Value of between £12,001 and £51,000. Grant 2: For all other sectors, the Welsh Government package provides a £10,000 grant to all businesses eligible for Small Business Rates Relief, with a Rateable Value of £12,000 or less.
State Aid
Aid rules continue to apply during a transition period, subject to regulation by the EU Commission. The Council must be satisfied that all State Aid requirements have been fully met when making grant payments, including, where required, compliance with all relevant conditions of the EU State Aid De-Minimis Regulation, the EU Commission Temporary Framework for State Aid measures to support the economy in the current COVID-19 outbreak, the UK notified and approved Scheme under that Temporary Framework, and any relevant reporting requirements to the EU Commission. Grant payments made under the UK Temporary Framework Scheme will be subject to a de minimis limit of €800,000. The Government’s assessment was, given the impact of COVID-19 in the sectors receiving the expanded retail, leisure and hospitality discount 2020-21, it was not State Aid. The Government discussed this matter with the European Commission and as a result those discussions, advised local authorities to apply the relief to all eligible properties.
Whilst the UK left the EU on 31 January 2020, the Withdrawal Agreement provides that State
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THE NEXT REVALUATION The Non-Domestic Rating (Lists) Bill was introduced in the House of Lords on 18th March 2020.
purposes of new local and central non-domestic Rating Lists when next compiled.
That Bill sought to implement commitments made at the Queen’s Speech on 19th December 2019 to bring forward the next business rates Revaluation by one year, to 1st April 2021.
At this stage it is hoped that the crisis will be behind us, and we will have a fuller and clearer picture of the effects on property and market rents as business confidence recovers.
Ordinarily, this would have been universally welcomed, but the pandemic changed the landscape considerably. These are clearly unprecedented times, which required unprecedented and continued decisive action to be taken by Government.
If the bill hadn’t been withdrawn, Rateable Values would have been based upon facts at a material date a year before COVID-19 adversely affected the economy. This would have had the devastating impact of setting valuations at an artificially high level, especially for the retail, leisure and hospitality sectors which will need time to recover.
On 6th May 2020, Communities Secretary Rt Hon Robert Jenrick MP announced a Revaluation of business rates would no longer take place in 2021 in order to help reduce uncertainty for businesses affected by the impacts of COVID-19. In our opinion, the Rating Lists (Valuation Date) (England) Order 2018 No. 553 should be amended to establish 1st April 2021 as the day by reference to which all non-domestic properties must be valued for the
The business rates ‘holiday’ introduced for these sectors in 2020/21 made the case even more compelling; given retail, leisure and hospitality account for 37% of all properties liable for business rates. In reverting to a 2022 Revaluation, resources at the Valuation Office
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With the offices of the Valuation Office Agency temporarily closed and the Valuation Tribunal Service not set to hear cases until 30th June at the earliest, outstanding appeal cases will continue to rise; running the risk of starting a new cycle with a backlog despite the additional funding allocated at the Budget. The Valuation Office Agency holds a comprehensive set of data for a 1st April 2019 AVD. This baseline data, together with public sector data and emerging detail from all parties, could be used to create a focused “tone” setting for bulk classes going forward. In delivering a 2022 Revaluation and ensuring an accurate reset can take place, the AVD should be revisited and amended from 2 years to 1 year prior to Revaluation.
A Revaluation in 2022, with an Antecedent Valuation Date in 2021, would provide a complete reset of Rateable Values, taking into account the state of the market after the crisis has passed. Mike Dunlevey, Senior Director, Altus Group
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Given the economic impact of COVID-19, and the downward pressure this will ultimately have on open market rents, especially in those sectors adversely affected, Government was lobbied to revert to the default position and withdraw the bill.
Agency tasked with finalising a 2021 Revaluation can now turn to the settlement of outstanding 2017 List appeals, providing business with a tax stimulus.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
The key benefits of the postponement of the 2021 Revaluation: Certainty No large scale and unexpected changes to business rates liability next April.
Stability As Rateable Values will not change, there is a stable base for the Government to deploy COVID-19 related rates reliefs more easily.
Fairness The next Revaluation will set Rateable Values based on rental levels reflecting the impact of COVID-19.
Alignment New Rateable Values will be more closely aligned with the post COVID-19 economy.
It is an excellent example of organisations working well together for a common goal. Andrew Goodacre, Chief Executive Officer, British Independent Retailers Association
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BIRA were really grateful when Altus Group made us aware of the potential problem with the Revaluation. It was a potentially serious issue and our successful joint campaign to get these changes cancelled has certainly made a real difference for retailers in the future.
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UK Property Taxes
Britain’s reliance upon property for tax revenues has shown no sign of abating, with around £1 in every £8 raised in overall taxes derived from property. Tax revenue from property in the UK has risen by £25.85 billion since 2010 to £87.62 billion during 2018/19, £2.07 billion more than the previous financial year.
UK Property Taxes vs Overall UK Tax Revenues 2010/2011
61.8
2011/2012
63.4
2012/2013
65.3
2013/2014
70.1
2014/2015
74.7
2015/2016
76.6
2016/2017
81.3
2017/2018
85.6
2018/2019
87.6
0
100
514.13 544.89 549.09 567.15 586.9 609.65 644.56 681.85 710.33
200
300
400
500
600
700
800
£ Billion UK Property Taxes
Overall UK Tax Revenues
Source: OECD Revenue Statistics
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Property taxes in the UK, as a percentage of overall taxation, were 12.33% for 2018/19, more than double both the OECD and European Union averages of 5.48% and 4.49% respectively.
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UK PROPERTY TAXES
In the UK, property taxes include all tax receipts from council tax, business rates, SDLT (stamp duty land tax) and LBTT (land and building transaction tax) in Scotland.
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The UK has regained the top spot from the USA as the country with the highest level of property taxes as a percentage of overall taxation.
GBR 12.33%
USA 12.20%
CAN 11.72%
KOR 11.61%
IRL 5.89%
LVA 3.03%
ISR 10.26%
ISL 5.48%
DEU 2.74%
LUX 9.78%
CHL 5.14%
HUN 2.70%
FRA 8.92%
TUR 4.32%
SWE 2.16%
GRC 7.91%
DNK 4.09%
SVN 1.65%
BEL 7.83%
PRT 4.06%
CZE 1.31%
CHE 7.62%
NLD 4.03%
AUT 1.29%
ESP 7.26%
POL 3.75%
SVK 1.23%
ITA 6.09%
FIN 3.38%
LTU 1.00%
NZL 5.97%
NOR 3.31%
EST 0.68%
Source: OECD
Only the United States, Canada, Korea and Israel had property tax revenues that amounted to more than 10% of overall tax revenues.
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BUSINESS RATES IN ENGLAND & WALES Multipliers effective 1st April 2020
£ =(£
Annual Business Rates Bill
•
Highest tax rates on record
•
Standard rate of tax over 50%
Rateable Value of Non-Domestic Property
x% Multiplier
)
Any Eligible Reliefs
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ANNUAL BUSINESS RATES REVIEW MAY 2020
£25.62 Billion* To Be Collected in 2020/21
Source: Ministry of Housing, Communities & Local Government
* Before the effects of the enhanced retail discount - see page 9
Schedule 7 of the Local Government Finance Act 1988 (as amended) provides for two business rates multipliers in England. The small business multiplier, used for properties with a Rateable Value below £51,000, and the standard rating multiplier, used for the remaining non-domestic properties.
Schedule 7 of the 1988 Act. The multiplier for 2020/21 is based upon the 2019/20 multiplier, adjusted for inflation in accordance with the Retail Price Index for September 2019 (unless HM Treasury exercises its power to provide for a lower increase by Order).
The small business multiplier is determined in accordance with
At the 2017 Autumn Budget, the Government confirmed that the
annual uplift in business rates would be based on the lower headline rate of inflation (Consumer Prices Index) rather than the Retail Price Index, effective from 1st April 2018. Her Majesty’s Treasury made an Order in Parliament to provide for that arrangement to continue for 2020/21.
Consumer Price Index (CPI), September 2019 - 1.7% Source: ONS
The net effect provides for a small business multiplier of 49.9p, with a standard multiplier of 51.2p; both effective from 1st April 2020.
Total Rateable Value in England
Less than £51,000
28%
More than £51,000
72%
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ANNUAL BUSINESS RATES REVIEW MAY 2020
Previous Years’ Business Rates Multipliers £0.56p £0.54p £0.52p £0.50p £0.48p £0.46p £0.44p £0.42p 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Standard
£0.40p
Small
* The amount to be collected was an estimate on 31st January 2020. Additional reliefs will now be deducted from the 2020/21 forecasted yield. The tables below show the estimated costs of additional reliefs announced as part of the COVID-19 support package to businesses.
Estimated cost of COVID-19 rates reliefs Cost of expanded retail discount
£10,060,966,496
Cost of nursery discount
£89,376,598
Cost of local newspaper relief
£170,326
Total estimated cost of additional reliefs in 2020/21
£10,150,513,420
£1.14 Billion* To Be Collected in 2020/21 Source: Welsh Government * Before the effects of the enhanced retail discount - see page 9
From April 2018, the Welsh Government uprated the multiplier according to the Consumer Price Index. For the financial year 2020/21, the single multiplier for all properties will be uplifted to 53.5p.
Previous Years’ Business Rates Multipliers £0.56p £0.54p £0.52p £0.50p £0.48p £0.46p £0.44p £0.42p £0.40p 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
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Ending Inflationary Rises
The continuation of indexation, the annual increase of the multiplier, even at the lower measure of inflation, will ultimately lead to more paid in property taxes than rent, culminating in the tax rate eventually exceeding £1 - an effective 100% tax rate on open market rents. The business rates yield continues to outpace inflation through continued growth within Local Rating Lists. Councils in England had estimated, before the announcement of enhanced reliefs in response to the economic impact of COVID-19, that business rates income for 2020/21 would be £25.62 billion, an increase of £649 million (2.6%) on the figure for 2019/20. The headline rate of inflation in September 2019 was 1.7%. Between 1990, when business rates were first ‘nationalised’, and 2012, the tax was collected
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locally and passed on to central Government to redistribute to Councils in the form of grants. From 2013/14 onwards, under the ‘devolution revolution’, the Business Rates Retention System was implemented. Councils generally kept 50% of revenue raised locally; subject to tariffs, top-ups, a levy and ‘safety-nets’. The remaining 50% is pooled nationally and redistributed as a series of grants. Under devolution, Councils receive a reward for growing their business rates income, keeping a share of any growth in receipts. Under 50% business rates retention, Councils retain 50% of any growth with this figure set to increase to 75% in 2020/21. In addition to resetting baselines under the Government’s plans to reform local finance. The Government, at Revaluation, not only reset the multiplier to ensure the effects are revenue neutral, but additionally increase the business rates multiplier to offset the monetary effects of appeals at a national level. The intention being the increase in the multiplier will negate the loss of Rateable Value during the life of the cycle, leaving business rate revenue theoretically unchanged.
Encouraging and supporting investment and growth is a far better way for Councils to grow their revenue, rather than relying upon guaranteed inflationary rises which acts as a disincentive. Martin O’Neill, MRICS IRRV, Regional Vice President, Altus Group
ENDING ANNUAL INFLATIONARY RISES
ENGLAND
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In 1990/91 the standard rate of tax for business rates was 34.8p, a rate comparable to other tax rates at that time. UK Corporation tax was 34%. Whilst Corporation tax today stands at 19%, in contrast, the standard rate of tax for rates has risen to 51.2p for 2020/21, a near 50% increase.
SMALL RV <£51,000
STANDARD
Multiplier 2016/17
48.4p
49.7p
Adjustment To Ensure Revenue Neutrality
-4.8p
-4.8p
Base Rate For 2017 List
43.6p
44.9p
Adjusted For Losses On Appeal
2.1p
2.1p
Adjustment For Inflation (2% Rpi)
0.9p
0.9p
Opening Multipliers On 2017 List
46.6p
47.9p
Source: Altus Group
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ANNUAL BUSINESS RATES REVIEW MAY 2020
During the financial year 2017/18 and 2018/19, the overall Rateable Value ‘lost’ in England through successful Checks, Challenges and Appeals, in addition to consequential adjustments, totalled £207m and £215m respectively. A shortfall already funded by the built-in presumption to the opening multiplier.
Rateable Value respectively has temporarily been lost from the List, typically where the assessment has been reduced to a nominal value as a result of undergoing refurbishment or works. Those properties will, however, come back into the Lists upon service of completion notices at a generally higher Rateable Value.
Further, during 2017/18 and 2018/19, £580m and £361m in
This leaves actual growth in the local Rating Lists since the
Revaluation came into effect on 1st April 2017. During 2017/18 and 2018/19, £223m and £208m extra Rateable Value was added to the local Rating Lists. This was predominantly as a result of planning alterations in addition to, for example, new plant and machinery or under-valued assessments.
2017/18 Positive Alterations Rateable Value Increase Properties
Rateable Value Increase
East
1,913
£26,249,196
East Midlands
1,643
£19,289,112
London
1,740
£37,568,174
719
£8,472,996
North West
2,142
£23,490,783
South East
3,693
£49,466,643
South West
1,683
£19,135,146
West Midlands
1,570
£21,580,292
Yorkshire/Humberside
1,569
£18,230,044
16,672
£223,482,386
Rateable Value Increase Properties
Rateable Value Increase
Industry
3,581
£56,555,469
Offices
1,741
£29,089,445
Other
7,383
£110,725,002
Retail
3,967
£27,112,470
Total
16,672
£223,482,386
Region
North East
Total Sector
Source: Valuation Office Agency
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ANNUAL BUSINESS RATES REVIEW MAY 2020
2018/19 Positive Alterations Rateable Value Increase Properties
Rateable Value Increase
East
1,501
£23,970,740
East Midlands
1,258
£18,249,508
London
1,218
£31,600,075
645
£8,019,940
North West
2,096
£28,627,661
South East
1,980
£34,182,941
South West
1,559
£21,802,951
West Midlands
1,445
£23,412,705
Yorkshire/Humberside
1,349
£18,183,061
13,051
£208,049,582
Rateable Value Increase Properties
Rateable Value Increase
3,894
£72,853,106
923
£22,336,335
Other
5,717
£91,935,007
Retail
2,517
£20,925,134
Total
13,051
£208,049,582
Region
North East
Total Sector Industry Offices
Source: Valuation Office Agency
During 2017/18 and 2018/19, £5.58bn and £3.54bn was added to the local Rating List as a result of new and reconstituted properties.
ENGLAND
Total New Properties
Total New Properties RV £
133,117
£5,580,654,679
85,282
£3,540,140,889
1st April 2017 to 31st March 2018 Change 1st April 2018 to 31st March 2019 Change
Source: Valuation Office Agency
19
ANNUAL BUSINESS RATES REVIEW MAY 2020
2017/18 New Property Growth Region
Total New Properties
Total New Rateable Value
East
14,904
£528,204,541
East Midlands
10,458
£341,559,588
London
23,041
£1,908,717,999
North East
5,534
£191,543,558
North West
15,551
£535,147,449
South East
21,130
£864,698,458
South West
15,142
£381,163,541
West Midlands
12,490
£423,498,399
Yorkshire/Humberside
14,867
£406,121,146
133,117
£5,580,654,679
Total New Properties
Total New Rateable Value
Industry
29,443
£863,732,027
Offices
49,787
£2,113,719,478
Other
40,119
£1,215,774,000
Retail
13,768
£1,387,429,174
0
£-
133,117
£5,580,654,679
Total
Sector
Unknown Total
Source: Valuation Office Agency
2018/19 New Property Growth Region
Total New Properties
Total New Rateable Value
East
9,641
£387,301,253
East Midlands
6,803
£187,223,814
14,476
£1,317,607,896
North East
4,035
£103,371,391
North West
12,383
£338,353,366
South East
11,646
£454,448,786
South West
10,668
£219,863,284
West Midlands
7,115
£261,488,500
Yorkshire/Humberside
8,515
£270,482,599
85,282
£3,540,140,889
Total New Properties
Total New Rateable Value
Industry
20,981
£683,917,281
Offices
27,467
£1,238,813,391
Other
26,271
£892,427,335
Retail
10,563
£ 724,982,882
0
£-
85,282
£3,540,140,889
London
Total
Sector
Unknown Total Source: Valuation Office Agency
20
ANNUAL BUSINESS RATES REVIEW MAY 2020
During the first two years of the 2017 cycle, real term growth in Rateable Value amounted to £9.55 billion. Growth is always, however, counterbalanced by decline. During 2017/18 and 2018/19, through removal of properties from the List; those demolished, exempt or reconstituted, £4.66 billion and £2.87 billion was lost, a total reduction of £7.53 billion in Rateable Value.
ENGLAND
Total Deleted Properties
Total Deleted Properties RV £
-82,544
-£4,664,670,261
-64,492
-£2,867,150,886
1st April 2017 to 31st March 2018 Change 1st April 2018 to 31st March 2019 Change
Source: Valuation Office Agency
2017/18 Existing Property Decline Region
Total Deleted Properties
Total Deleted Rateable Value
East
9,433
£456,112,674
East Midlands
6,925
£289,222,222
13,393
£1,585,559,250
North East
3,579
£164,811,435
North West
10,449
£457,996,840
South East
12,125
£ 723,573,157
South West
9,951
£322,479,532
West Midlands
8,139
£344,686,142
Yorkshire/Humberside
8,550
£320,229,009
82,544
£4,664,670,261
Total Deleted Properties
Total Deleted Rateable Value
1,268
£40,106,760
363
£8,544,910
Other
18,152
£982,124,599
Retail
62,724
£3,633,852,592
37
£41,400
82,544
£4,664,670,261
London
Total Sector Industry Offices
Unknown Total
Source: Valuation Office Agency
21
ANNUAL BUSINESS RATES REVIEW MAY 2020
2018/19 Existing Property Decline Region
Total Deleted Properties
Total Deleted Rateable Value
East
7,556
£321,041,889
East Midlands
4,946
£150,341,798
10,259
£1,017,131,017
North East
3,075
£85,971,095
North West
9,816
£282,363,709
South East
8,649
£384,060,061
South West
7,329
£174,996,991
West Midlands
6,323
£224,401,262
Yorkshire/Humberside
6,539
£226,843,064
64,492
£2,867,150,886
Total Deleted Properties
Total Deleted Rateable Value
1,064
£41,248,541
414
£8,600,195
Other
16,705
£752,133,226
Retail
46,299
£2,064,269,299
10
£899,625
64,492
£2,867,150,886
London
Total Sector Industry Offices
Unknown Total
Source: Valuation Office Agency
The net effect is real term growth in Rateable Value of £2.02bn over the first 2 financial years. This culminates in additional rates revenue of circa £570m in 2017/18 and £1.01bn in 2018/19; with the cumulative effect set to be far more pronounced during 2019/20 and 2020/21.
£2.02 Billion Growth in Rateable Value
Other corporate taxes do not rise with inflation. Removing annual inflationary rises would result in business rates becoming more predictable for businesses. It would be a fair way to ease the burden across all property sizes and sectors of the economy, rather than deploying reliefs constrained by State Aid rules.
“
“
Removal of the annual CPI adjustment to the Uniform Business Rate (UBR) is a deliverable meaningful reform that can be funded by growth. Philip Legg, BSc, MRICS, Regional Vice President, Altus Group
22
CHANGES TO LOCAL RATING LISTS IN ENGLAND & WALES The total number of public and private sector properties in England and Wales liable for business rates, across all sectors of the economy, increased to 2,083,023 as of 1st January 2020, taking to account changes to Local Rating Lists.
Number Of Properties Liable For Rates In England & Wales
Retail
418,353
Industry
515,359
Other Offices
615,069
534,242
Source: Altus Group
23
ANNUAL BUSINESS RATES REVIEW MAY 2020
The overall combined Rateable Value, which forms the basis of the business rates calculation between 2017 and 2022, under the 5-year cycle, increased to £67,270,115,255 as of 1st January 2020 in England and Wales.
Total Rateable Value Liable For Rates In England & Wales
£20,268,136,045
£20,000,000,000
£5,000,000,000 £0
£14,352,601,962
£10,000,000,000
£15,424,897,020
£15,000,000,000
Industry
Offices
Other
£17,224,480,228
£25,000,000,000
Retail
Source: Altus Group
As of 1st January 2020, compared with 1st January 2019, the overall number of properties liable for business rates increased by 39,281; considering both new and deleted properties. The industrial sector saw the largest growth, with net change of +17,001 properties; accounting for 43% of growth. The retail sector, which saw a 819 net growth in properties, had the lowest growth across all sectors at just 2%.
Increase In Properties During 2019
2% Retail Industry
31%
43%
Other Offices
24%
Source: Altus Group
24
ANNUAL BUSINESS RATES REVIEW MAY 2020
Overall changes to the local Rating Lists in England and Wales during the calendar year 2019, saw Rateable Value increase to £746,497,079. The net increase takes in account new Rateable Value added to the List through new properties in addition increases for existing properties as a result of any material changes, also the Rateable Value lost during the calendar year due to successful appeals and deletions due to properties being temporarily removed from the List as they undergo refurbishment, or are permanently removed through demolition.
Growth In Rateable Value During 2019
Retail
16%
Industry
27%
Other Offices
17%
40%
Source: Altus Group
Despite a net change of 2% in property numbers in the retail sector during the 2019 calendar year, the sector accounted for 16% of the overall increase in Rateable Value in England and Wales.
VOA Sectors
Change in 2017 Rateable Values During 2019
Industry
£201,979,831
Offices
£124,644,385
Other
£297,454,436
Retail
£122,418,427
Total
£746,497,079 Source: Altus Group
25
ANNUAL BUSINESS RATES REVIEW MAY 2020
Change In Property Volume By Property Classification Number of Properties - 1st January 2019
Number of Properties 1st January 2020
Number of Properties Difference
408,947
418,353
9,406
Stores
82,320
91,203
8,883
Holiday Homes (Self Catering)
56,819
63,707
6,888
Factories, Workshops & Warehouses (incl Bakeries & Dairies)
358,804
365,094
6,290
Independent Distribution Network Operators (INDOs)
1,022
3,049
2,027
Car Spaces
60,215
61,312
1,097
Land Used for Storage
23,745
24,837
1,092
Business Units
9,428
10,042
614
Showhouses (National Scheme)
2,909
3,501
592
27,432
27,995
563
Number of Properties - 1st January 2019
Number of Properties 1st January 2020
Number of Properties Difference
4,527
3,512
-1,015
Communication Stations (National Scheme)
37,633
36,809
-824
ATMs
15,784
15,228
-556
Public Houses/Pub Restaurants (National Scheme)
41,536
41,063
-473
Banks/Insurance/Building Society Offices & Other A2 Uses
9,567
9,377
-190
728
569
-159
17,536
17,218
-138
Clubs & Institutions
9,283
9,153
-130
Garages (Transport & Commercial)
7,698
7,586
-112
Post Offices
2,475
2,389
-86
Guest & Boarding Houses
7,865
7,791
-74
Biggest Growth Offices (inc Computer Centres)
Restaurants Biggest Decline Electricity Undertakings (NonStatutory)
Independent Gas Transporters (IGT) Surgeries, Clinics, Health Centres (Rental Valuation)
Source: Altus Group
26
THE NUMBER OF PUBS CALLING TIME DURING 2019 HALVES During 2019 around 9 pubs a week, a total of 473, ‘vanished’ from English and Welsh communities that they once served, having called last orders for the final time.
for National Statistics reported last November that the total number of pubs in Britain rose marginally, for the first time in 15 years, by 0.8% to the year ending 31st March 2019.
The news is likely to be a bitter blow to the pub trade after the Office
However, analysis of the local Rating Lists shows that the overall number
of pubs in England and Wales liable for business rates, including those vacant and being offered to let, fell to 41,063 on 1st January 2020 down 473 compared with 41,536 on 1st January 2019 in England and Wales.
27
ANNUAL BUSINESS RATES REVIEW MAY 2020
2020 Pub Numbers By Region North East Wales London East Midlands East Of England West Midlands Yorkshire/Humberside South West North West South East
2,037 3,152 3,660 3,688 3,856 4,085 4,432 4,797 5,480 5,876
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Source: Analysis of Local Rating Lists By Altus Group
The rate at which pubs are vanishing; either through demolition or conversion to alternative uses including residential and office, slowed from 914 during 2018, with the action taken by Government to cut costs having undoubtedly helped.
Total Pubs In England & Wales
42,450 41,536 1st January 2018
1st January 2019
41,063 1st January 2020
Source: Analysis of Local Rating Lists By Altus Group
But almost 10,000 pubs have been left out of the Government’s grant scheme to negate the economic impact of COVID-19 as they have Rateable Values of £51,000 or more. Some 9,184 pubs will miss out on a grant of any kind as their Rateable Value is too high, with 5,677 pubs in the Rateable Value band of £51,000 to £100,000 and 3,507 in the band of £100,001 or more.
28
ANNUAL BUSINESS RATES REVIEW MAY 2020
The Largest Regional Ratepayers 2020/21
Hartlepool Power Station £9,303,040
Sellafield Nuclear Reprocessing Site £25,490,868
British Steel, £11,139,997
Staythorpe Power Station, £6,568,960 Land Rover Ltd, £7,756,800
Tata Steel, £9,435,920
Sizewell Power Station B £22,969,886
Hinkley Point B Power Station £10,608,640
Heathrow Airport £113,225,560 Gatwick Airport £29,178,880 Source: Altus Group
29
ANNUAL BUSINESS RATES REVIEW MAY 2020
under the 2017 Revaluation. The airport saved £34.38 million in tax under the 4-year cycle.
Major infrastructure sites - from airports to power stations - remain dominant as the property type with the largest business rates bills for 2020/21.
cumulative compound rises of 71% and 46% respectively, making them the 3rd and 4th largest ratepayers, had it not been for the business rates ‘holiday’.
Other sites at Heathrow Airport, such as those operated by British Airways, are amongst the largest ratepayers in London; including Terminal 5, World Cargo Centre and Engineering Base.
Heathrow Airport continues to be the highest ratepayer, not only in London but across the whole of England and Wales, with a bill of £113.23 million. This figure is down from £127.95 million during 2016/17, the final year before the Revaluation, after the site’s Rateable Value fell £34.67 million
In the Capital, during the 4th year of the 2017 Revaluation, Selfridges and Harrods would have both seen rates bills over £17m, with
Across the regions many economies are dominated by a small number of large businesses, such as power stations, steelworks and car manufacturers. The economic viability of those businesses, under business rates retention, are crucial to local Government finances as a result.
England & Wales Largest Ratepayers For 2020/21
Address
Rateable Rates Payable Value 2017 2020/21
Cumulative Change Since 2017 Revaluation £
Cumulative Change Since 2017 Revaluation %
LONDON Heathrow Airport, Hounslow
£212,830,000
£113,225,560
-£14,731,940
-11.5%
British Airways Engineering Base, No 1 Maintenance Area, Heathrow Airport
£42,790,000
£22,764,280
£641,850
2.9%
Goldman Sachs, 25 Shoe Lane, London
£26,720,000
£14,428,800
New Assessment
New Assessment
HSBC, 8 Canada Square, London
£26,240,000
£13,959,680
£1,867,050
15.4%
British Airways Terminal 5, Heathrow Airport, Hounslow
£25,940,000
£13,800,080
£1,826,360
15.3%
BBC, Broadcasting House, 2-22 Portland Place, London
£24,720,000
£13,151,040
£1,575,410
13.6%
JP Morgan, 25 Bank Street, London
£23,120,000
£12,299,840
£946,520
8.3%
MHCLG, 2 Marsham Street, London
£22,700,000
£12,076,400
£340,500
2.9%
British Airways World Cargo Centre Buildings, Heathrow Airport
£22,120,000
£12,589,525
-£1,715,865
-12.0%
Francis Crick Institute, 1 Midland Road, London*
£20,500,000
£10,906,000
£3,151,000
40.6%
* Registered charity entitled to 80% mandatory relief
Source: Altus Group
30
ANNUAL BUSINESS RATES REVIEW MAY 2020
England & Wales Largest Ratepayers For 2020/21 Rateable Value 2017
Rates Payable 2020/21
Cumulative Change Since 2017 Revaluation £
Cumulative Change Since 2017 Revaluation %
Sizewell B Power Station, Leiston
£36,000,000
£22,969,886
-£3,122,614
-12.0%
Baa Stansted Airport, Stansted, Essex
£24,080,000
£12,328,960
-£180,530
-1.4%
Hartlepool Power Station, Tees Road, Hartlepool, Cleveland
£18,170,000
£9,303,040
£605,540
7.0%
Nissan UK Ltd, Washington Road, Washington, Tyne and Wear
£10,930,000
£5,596,160
£631,130
12.7%
Sellafield Works, Sellafield, Seascale, Cumbria
£46,280,000
£25,490,868
-£3,369,922
-11.7%
Heysham 2 Power Station, Morecambe, Lancs
£38,640,000
£19,783,680
£152,180
0.8%
Gatwick Airport, Gatwick, West Sussex
£56,990,000
£29,178,880
£367,790
1.3%
Vodafone Fibre Optic Telecoms Network In England Including Longshot Lane, Binfield
£28,990,000
£14,842,880
New Assessment
New Assessment
Hinkley Point B Power Station, Hinkley Point, Stogursey, Bridgwater
£20,720,000
£10,608,640
£5,797,680
120.5%
Devonport Royal Dockyard, Devonport, Plymouth
£13,260,000
£6,789,120
£228,720
3.5%
Tata Steel, Port Talbot Steelworks
£16,880,000
£9,435,920
-£721,480
-7.1%
Pembroke Power Station, Pwllcrochan, Pembroke
£16,080,000
£8,988,720
£921,120
11.4%
Jaguar Land Rover, Lode Lane, Solihull
£15,150,000
£7,756,800
£157,670
2.1%
Queen Elizabeth Hospital, Metchley Park Road, Birmingham
£14,180,000
£7,260,160
£3,264,280
81.7%
British Steel, Brigg Road, Scunthorpe
£19,490,000
£11,139,997
-£1,483,803
-11.8%
Drax Power Station, Selby, North Yorkshire
£19,250,000
£10,108,219
-£1,322,781
-11.6%
£12,830,000
£6,568,960
-£28,715
-0.4%
£9,720,000
£4,287,046
£3,079,336
255.0%
Address EAST
NORTH EAST
NORTH WEST
SOUTH EAST
SOUTH WEST
WALES
WEST MIDLANDS
YORKSHIRE & THE HUMBER
EAST MIDLANDS Staythorpe Power Station, Staythorpe Road, Averham, Newark Virgin Media Inc PDSL Network, Daleside Road, Nottingham
Source: Altus Group
31
Transitional Relief
The 2017 Revaluation should have been good news for ratepayers in economically disadvantaged areas who saw their property values plummet.
Top 10 Biggest Falls in Rateable Value In 2017 for Large Retail Premises Overall Average Rateable Value Rateable Value Change (%) Change (£)
Region
Postcode District
North West
OL7
-33.56%
-£125,576
North West
SK1
-30.43%
-£115,714
South West
EX2
-29.30%
-£131,500
South West
TQ2
-29.23%
-£139,281
South East
ME16
-28.06%
-£104,866
North East
TS1
-26.51%
-£96,693
South East
KT18
-25.18%
-£67,200
South East
CT20
-24.36%
-£103,350
South West
BH2
-23.39%
-£79,550
North West
BL1
-23.15%
-£88,790
*postcodes with more than 10 large retail properties with individual rateable values more than £100,000 Source: Altus Group
TRANSITIONAL RELIEF
Revaluation creates winners and losers; generating significant changes to rates liabilities with both large increases and large reductions.
The cost of that relief is, conversely, paid by phasing-in large reductions in bills that other ratepayers would have received as a result of the Revaluation.
From 1990, successive Governments have provided financial assistance to ratepayers through Transitional Relief schemes, phasing-in large increases in rates bills over several years, based on an annual “cap” on the percentage of the increase from one year to the next, before the effects of inflation are taken into account.
For towns like Blackpool, the 2017 Revaluation offered real hope and optimism. The occupiers of large retail premises in Blackpool should have been among the biggest “winners” with Rateable Values for the town’s large shops, those with a Rateable Value of more than £100,000, falling by as much as 46%.
32
ANNUAL BUSINESS RATES REVIEW MAY 2020
If The Bill Is Decreasing Rateable Value
2017 to 2018
2018 to 2019
2019 to 2020
2020 to 2021
Over £100,000
4.10%
4.60%
5.90%
5.80%
2%
3%
2.40%
1.70%
Inflation
Source: Ministry of Housing, Communities & Local Government
Yet, despite Rateable Values coming into effect in 2017, the large premises which saw property values plummet will only see a real term fall in business rates liabilities of 13% on average by 2021.
Ben Nelson, BSc (Hons), MRICS, Regional Vice President, Altus Group
“
“
Ratepayers of large properties due significant tax cuts will still see limited reductions, but will never enjoy the full benefit of the Revaluation - making the rating system less responsive to changes in local economic conditions.
Poundland, 63 Bank Hey Street, Blackpool, FY1 4QZ 2010 Rateable Value: £219,000 2017 Rateable Value: £119,000 Difference: -£100,000 (-45.66%)
Rate Year
Actual Rates Liabilities
No Downward Phasing
Cost of Transition
2017/18
£
105,230.17
£
57,001.00
£
48,229.17
2018/19
£
103,428.15
£
58,667.00
£
44,761.15
2019/20
£
99,622.18
£
59,976.00
£
39,646.18
2020/21*
£
95,412.01
£
60,928.00
£
34,484.01
Total
£
403,692.51
£
236,572.00
£
167,120.51
Rate Year
Fall in Actual Rates Liabilities
Fall Without Transition
2017/18
2.99%
47.63%
2018/19
4.97%
46.10%
2019/20
8.47%
44.90%
2020/21*
12.34%
44.02%
Source: Altus Group
33
Arcadia, 18 -20-22 Victoria Street, Blackpool, FY1 4RW 2010 Rateable Value: £246,000 2017 Rateable Value: £146,000 Difference: -£100,000 (-40.65%)
Rate Year
Actual Rates Liabilities
No Downward Phasing
Cost of Transition
2017/18
£
118,364.02
£
69,934.00
£
48,430.02
2018/19
£
116,339.84
£
71,978.00
£
44,361.84
2019/20
£
112,064.64
£
73,584.00
£
38,480.64
2020/21*
£
107,335.41
£
74,752.00
£
32,583.41
Total
£
454,103.91
£
290,248.00
£
163,855.91
Rate Year
Fall In Actual Rates Liabilities
Fall In Without Transition
2017/18
3.19%
42.79%
2018/19
4.84%
41.13%
2019/20
8.34%
39.81%
2020/21*
12.21%
38.86%
Source: Altus Group
SportsDirect, 1 St & 2nd Floors at 61 Bank Hey Street, Blackpool, FY1 4QZ 2010 Rateable Value: £305,000 2017 Rateable Value: £208,000 Difference: -£97,000 (-31.80%)
Rate Year
Actual Rates Liabilities
No Downward Phasing
Cost of Transition
2017/18
£
147,102.93
£
99,632.00
£
47,470.93
2018/19
£
144,593.28
£
102,544.00
£
42,049.28
2019/20
£
139,292.72
£
104,832.00
£
34,460.72
2020/21*
£
133,429.24
£
106,496.00
£
26,933.24
Total
£
564,418.17
£
413,504.00
£
150,914.17
Rate Year
Fall In Actual Rates Liabilities
Fall Without Transition
2017/18
2.96%
34.27%
2018/19
4.61%
32.35%
2019/20
8.11%
30.84%
2020/21*
11.98%
29.75%
Source: Altus Group *Liabilities have been discounted to £0 as part of the Government’s response to COVID-19
34
ANNUAL BUSINESS RATES REVIEW MAY 2020
It is important to note that, as with a Revaluation itself, while the system of Transitional Relief is designed to be revenue neutral for England as a whole, it is not revenue neutral at a regional or sector level. In the fourth year of the 2017 rating period, for the new financial year 2020/21 (1st April), through transitional relief phasing, the embattled retail sector would have been denied £99 million in tax reductions, while receiving just £38 million in tax relief had it not been for the 100% enhanced retail discount.
Transitional Relief 2020/21 £137 £120
£150
£99
£100
£84 £80
£Million
£50 £0
£4
Central List
£38
£40
£32 £24
£12
Industry -£8
£17
Office
Other
Retail
-£28
-£50
-£61 -£100 VOA Sectors Denied Reductions
Relief Granted
Net Difference
Source: Altus Group
During 2020/21, the retail sector would have been net contributors to the transitional relief pot of £61 million, effectively funding other sectors of the economy, without the 100% retail relief.
2017/18
2018/19
2019/20
2020/21
4 Year Cycle
Net Difference
Net Difference
Net Difference
Net Difference
Net Difference
£241
£198
£118
£80
£637
-£135
-£49
-£13
-£8
-£205
Office
-£81
-£69
-£42
-£28
-£220
Other
£227
£108
£41
£17
£393
Retail
-£252
-£188
-£103
-£61
-£604
Central List Industry
During the first three fiscal years of the 2017 Revaluation, the net cost of transitional relief to the retail sector was £543 million, which would have increased by a further £61 million for 2020/21 ordinarily. As a result, the retail sector will contribute £604 million more into the ‘pot’ than it received. The system has created a scenario where a retail sector undergoing fundamental structural change is helping to subsidise the tax liabilities of some of Britain’s largest infrastructure companies.
35
ANNUAL BUSINESS RATES REVIEW MAY 2020
Year 2017/18
Year 2018/19
Year 2019/20
£38m
£99m
£81m
£184m
£164m
£352m
£332m
£584m
Transitional Relief for Retail
Year 2020/21
Financial Years Denied Tax Reductions
Relief Granted
Source: Altus Group
During the 2017 Revaluation, between 2017 and 2021, without enhanced reliefs, the retail sector would have been denied tax reductions of £1,219 million through the phasing-in of large increases, whilst receiving £615 million in relief through the capping of steep increases in liabilities.
Call for change Abolishing the strict limits on reductions would put fairness back into the heart of the rating system, allowing businesses to respond to changing markets. It is imperative the system caps large increases as they act as an important shock absorber. Removing downward transition, paid for by a small supplement on all bills, would result in an immediate tax stimulus to depressed regions where the effects of the next Revaluation are likely to be far more pronounced. At the same time this would avoid compounded downward transition for those that were in transition for the whole of the 2017 List, never reaching their true liabilities.
Dean Bosley, Regional Vice President, Altus Group
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Asking underperforming sectors and regions to pay more in tax to help subsidise those better faring economies simply does not support the Government’s ambitious desire to “level up” the fortunes of struggling towns left behind; nor does it satisfy the principles underpinning any system of taxation - fairness and supporting growth.
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CHECK, CHALLENGE AND APPEAL A new system for challenging business rates bills was introduced on the 1st April 2017. ‘Check, Challenge and Appeal’ significantly changed the way business rates appeals were handled under a three-stage process:
£ “Check”
“Challenge”
“Appeal”
The first stage. Ratepayers (or their representatives) check the information that the Valuation Office Agency (VOA) hold about their property.
The ‘proposal’ stage. A proposal must be made within 4 months of the date the check was completed. If the VOA does not agree with the proposal and the ratepayer does not withdraw it, the VOA will serve a notice of decision setting out why they are not making the alteration or are making a different alteration from the one proposed.
The final stage where, if the ratepayer is not happy with the VOA notice of decision, an appeal can be made to the independent tribunal. This must be done within 4 months of the date of the VOA decision notice.
By the end of December 2019, 164,050 premises liable for business rates including shops, factories, offices, restaurants and public sector buildings, had lodged Checks and Challenges. A total of 137,360 Checks were received of which 94% were cleared. This figure can be compared to 475,340 for the corresponding period after the 2010 Revaluation.
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ANNUAL BUSINESS RATES REVIEW MAY 2020
Outcomes of Checks
Outcomes of Challenges
760
Agreed
42,230 76,070
Agreed
Partially Agreed
Disagreed
Disagreed
Withdrawn
3,070
5,870
11,490
Source: Valuation Office Agency
Under the second stage, 26,690 Challenges were received, of which 44% were cleared, including 1,940 incomplete. Despite the volume of new Challenges decreasing by 6.77% in the final quarter of 2019, the number of outstanding Challenges waiting to be dealt with rose 19.6%; from 12,580 on 30th September 2019 to 15,050 on 31st December 2019. The new system has resulted in relatively low volumes compared with the previous Revaluation cycle, but, with one year remaining and with around 215,000 properties claimed on the Government Gateway yet to start a Check, we anticipate a dramatic and potentially threefold increase in volume. The settlement rate would be required to increase significantly during 2020 to keep pace. Peaks and troughs usually occur in settlement activity throughout the life of a cycle. Against the 2005 and 2010 Lists, peaks occurred early into the Lists as speculative challenges were processed. Dips in settlement activity occurred as VOA resources were switched to Revaluation matters, before an uptick in settlement activity in the final year of the cycle.
Appeal Settlements by Assessment Cycle 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
2005 List
2010 List
2017 List
Source: Valuation Office Agency
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ANNUAL BUSINESS RATES REVIEW MAY 2020
The Valuation Office Agency has more to do with fewer resources. In 2010, there were 1,839 million non-domestic properties in England and Wales – this has increased to 2,083 million by 1st January 2020, a rise of 13.27%.
3511
3449
3609
3517
3380
2013 / 14
2014 / 15
2015/ 16
2016 / 17
2017 / 18
3163
3480 2012 / 13
2018 / 19
3564 2011 / 12
3820 2010/ 11
4063
3843 2008 / 9
2009 / 10
3990 2007 / 8
4228 2006 / 7
2005 / 6
5084
Full Time Equivalent VOA Staff
Source: Valuation Office Agency
However, staffing numbers at the VOA show a decline in full time equivalent staff of 17.2%. The Government will now invest an additional £11.5 million during 2020/21 in the Valuation Office Agency, the Chancellor announced at the 2020 Budget as part of wider measures to tackle business rates. The announcement came as a direct response to a long-awaited review by HM Revenue and Customs into business rate appeals in England in which the Government was told “at a time when the VOA is being asked to do more each year, it is also facing challenges both in terms of having sufficient qualified valuers within the agency and also with modernising its technology.” Councils across England estimate the cost of business rates appeals will be £927 million during 2020/21.
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A More Sustainable Future: Carbon Rates Offset
The UK led the first industrial revolution, and now we are at the forefront of a green industrial revolution. Green growth requires large scale changes in the behaviour of both business and leadership. Taxation could be a key policy for providing clear and sustained incentives to reduce environmental damage as we tackle climate change head on. Businesses need certainty that the investment they make to reduce the scale of environmental damage will be financially worthwhile. With the Government yet to outline firm plans or new measures to reach net zero carbon emissions by 2050, the business rates system could be leveraged to stimulate investment in energy efficient and carbon abatement solutions. Despite the growing urgency to address energy demand and emissions from buildings, current levels of investment fall short. Driving change through turning non-domestic properties green or eco-friendly requires investment which is currently financially penalised.
Stephen Philp, MRICS MCMI, Rating Chairman, Altus Group
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Where a business adopts sustainability within their process to reduce their carbon footprint it should be for the benefit of the ‘planet’ not the public purse. It simply makes no sense to penalise businesses for lowering their emissions.
The Wood committee last redefined the classes of plant and machinery included within business rates bills in 1993. They are now wholly inconsistent with the Government’s initiatives on energy efficiency and climate change. In England, the rating of plant and machinery is expressly governed by statute. The Valuation for Rating (Plant and Machinery) Regulations 2000 set out four classes of rateable plant and machinery. Class 2 covers plant which provides services to a property. In this Class “services” can be defined as heating, cooling, ventilating, lighting, draining or supplying of water and protections from trespass, criminal damage, theft, fire or other hazard. As a direct consequence, many items can be rated separately increasing taxation costs.
What counts as plant and machinery?
A MORE SUSTAINABLE FUTURE: CARBON RATES OFFSET
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Air conditioning / air handling (floor area served by system (sq m)
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CCTV security system (only if 4 or more cameras)
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Fire protection / detection / alarm / suppression (area covered by sprinkler system (sq m)
•
Lifts (floors served and capacity, whether goods or passenger)
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Air compressors (whether screw or piston). Free air flow capacity in cubic metres per hour, or cubic feet per minute. (CMH / CFM)
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Renewable energy items (presence of solar panels / wind turbine, and their generating capacity in kilo Watts (kW)
•
Cold stores (whether built in or free standing as well as gross floor area)
•
Uninterruptible power supply / standby generator (size of generator in kilo Volt Amps (kVA)
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ANNUAL BUSINESS RATES REVIEW MAY 2020
Investment in renewable energy to produce heat or power from solar technologies, biomass, biofuels, fuel cells, photovoltaics, wind, water (including waves and tides, but excluding production from the pumped storage of water) and geothermal systems should not increase overall Rateable Value and Class 2 should be amended accordingly to provide a complete exemption. Not only is it the right thing to do, such an exemption will free the time spent by the Valuation Office Agency inspecting and revaluing, releasing additional resources to expediate Check Challenge Appeal for those businesses waiting for an outcome.
LEGISLATIVE CHANGE 47% of Councils do not have a strategy in place to reduce the carbon emissions from their own buildings, offices or housing stock. Government cuts to local budgets since 2010 will make it nearly impossible for most Councils to tackle the climate crisis head-on. Councils are concerned about the imposition of any statutory duty to act over emissions without the necessary additional financial resources; a reason why green incentives through the business rates system cannot be delivered through discretionary relief.
nor reduced the long-term ongoing taxation costs but, in any event, will be abolished from April 2020. The Scheme also proved so complex that, for many taxpayers, the administrative burden of making a claim outweighed the perceived benefit. No replacement has been announced, leaving no meaningful fiscal incentives.
The Enhanced Capital Allowance Tax Scheme, where businesses can claim 100% capital allowances, written off against the taxable income of the period in which the investment is made on certain capital expenditure that qualifies as energy efficient, is also inconsistent with the Government’s objectives.
We can be more ambitious. Business rates can increase significantly if older buildings are brought up to the standard of modern equivalents. The build costs are high, and rates rise accordingly. By incentivising older buildings to be greener by incorporating high energy systems such as high-efficiency interior lighting, HVAC or hot water systems, or efficient building envelopes for example, we can encourage investment and speed up the reduction in our CO2 emissions.
A Biomass Boiler may qualify for enhanced capital allowances, for example, but a wind turbine or solar panels would not because they are energy producing. The Enhanced Capital Allowance Tax Scheme neither negated
Supply and demand, which varies across the country, and from sector to sector, will ultimately determine how much extra rent can be derived having an energy efficient building compared to one that is not. Landlords will look
at the return on investment and, with leases getting shorter, it is not clear that Landlords will always benefit from an exercise of refurbishing buildings to simply enhance the energy efficiency in isolation. The Energy Efficiency (Private Rented Sector) (England and Wales) Regulations 2015 made it unlawful from April 2018 to let commercial properties with an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’, the lowest 2 grades of energy efficiency, contributing to the increase in the number of buildings lying empty and redundant. The regulations are enforced upon the granting of a new lease and the renewal of existing leases, and from 1st April 2023, minimum energy efficiency standards will be extended to cover all leases, including where a lease is already in place. All non-domestic property types are within the scope of the regulations, except for those that do not require an EPC under current regulations, such as listed buildings.
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On the Road to Zero
In order to meet the medium to long term low emission vehicle uptake ambitions, the UK needs an accessible, affordable and safe charging infrastructure network for electric vehicles. A lack of charge points is often cited in consumer research as a key reason as to why some people will not consider buying an electric vehicle. Increasing the access to and availability of charge points is key. The Automated and Electric Vehicles Bill received Royal Assent on the 19th July 2018, becoming the Automated and Electric Vehicles Act 2018. However, it contains a Commencement Order which means that most sections will need to be enacted by regulation at the Order of the Secretary of State for Transport via a statutory instrument. The Act also confers onto Government the powers to force certain retailers to install charging points, for example, in large fuel stations and motorway service stations and also to ensure that these points are ‘smart’, i.e. they allow for functionality, information and payment to be offered at one point including options for remote payment. The Government, within their “Road to Zero” strategy, also proposes every new non-domestic building as well as every non-domestic building undergoing major refurbishment, with more than 10 car parking spaces, must have one charge 8 point with cable routes for an electric vehicle charge point for one in five spaces. The proposal, insofar as existing non-domestic buildings, is a requirement for at least one charge point with more than 20 car parking spaces, from 2025. The current position appertaining to business rates is uncertain. There is no specific reference to electric charging points in the VO Rating Manual. Whilst many may be valued as part of a forecourt throughout which is all embracing, in terms of supermarkets and office blocks, the taxation position is likely to depend upon who operates the system and the outcome of the ATM case on the issue of paramount occupation currently proceeding through the Supreme Court. Electric vehicles will occupy a space as would a car simply using the car park, that space is already reflected in Rateable Values. There may be a marginal increase in value for the exclusivity of the facility. The Government should address the uncertainty ahead of the Revaluation in 2022. We would urge the Government to specifically exempt electric vehicle charging points from business rates to provide certainty and make a real statement of intent by exempting the associated car parking space from Rateable Values altogether.
ON THE ROAD TO ZERO
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Empty Rates
Altus Group has the only dedicated Empty Rates Team in the UK deploying a wide range of innovative strategies and pioneered risk-free approaches to minimise liabilities for developers, property companies, funds and occupiers with vacant property across the country. That approach led to a ground-breaking appeal win for properties under refurbishment, with the decision paving the way for the Valuation Office Agency to address less favourable treatment of industrial property. In the Orchard Street Investment Management case, Altus Group successfully put forward the case that a warehouse unit was “incapable of beneficial occupation” for the purposes of business rates from the date that physical works to strip out and refurbish the property had commenced. The Valuation Tribunal’s decision clarified a point of law from the Supreme Court ruling in Newbigin v Monk, referring to an earlier empty rates victory by Altus Group in the Upper Tribunal in Aviva Investors Property Developments v Whitby. The VOA had put forward that the unit was undergoing repair works rather than a course of refurbishment. The Valuation Tribunal noted that refurbishment was all the more likely when the premises had just been vacated by the previous tenant but found the argument irrelevant to the case when it was clear that the unit was “incapable of beneficial occupation”.
Edward Searle, BSc, MRICS, Vice President, Altus Group
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The VOA continues to drag its feet in implementing the Supreme Court’s ruling in the Monk case. It has been particularly dismissive of the commercial realities in refurbishing and reletting industrial property. The distinctions they make are spurious and deny prompt relief to landlords.
Long term reform of Empty Rates regulations by the Government is needed to recognise that the current 3 and 6 month exemption periods are inadequate to allow commercial properties to be refurbished, marketed and re-let; with the current climate presenting an ideal opportunity for change through the upcoming review. This was a timely victory for landlords currently excluded from any of the COVID-19 rate reliefs in respect of their empty properties, whilst facing some months of rent holidays and tenant failures.
EMPTY RATES
There is a continuing requirement for the Empty rates system to be modernised and made fully fit for purpose. We continue to lobby for meaningful change to ensure fairness for ratepayers. As part of this we believe that Empty rates should not be applied on Retail, Hospitality and Leisure properties to ensure consistency in approach with occupied premises. Any property which becomes vacant as a result of the economic impact of COVID-19 should be exempt from empty rates during the 2020/21 rate year.
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2019 Case Law Review
In Derby Teaching Hospitals NHS Foundation Trust and others v Derby City Council and others, the High Court held that NHS Foundation Trusts were not charities for the purposes of section 43(6) of the Local Government Finance Act 1988 and were, therefore, not entitled to 80% charitable relief on the properties they occupied. 11 out of the original Claimants have applied for leave to appeal to the Court of Appeal. The case, Stephen G Hughes v Exeter City Council, related to the business rates paid by Exeter Royal Albert Memorial Museum, operated upon a not for profit basis, was heard at the Upper Tribunal which held the museum should not have been valued on the cost of rebuilding, the contractor’s valuation, but valued on net income (receipts and expenditure). Leave to appeal has been sought. Wigan Football Club Limited v Wayne Cox (VO) was a case where the Upper Tribunal, upheld the decision of the Valuation Tribunal, that relegation of a football club from the Premier League to the Championship and the subsequent relegation to League One did not constitute a material change of circumstances providing grounds for a reduction in rateable value. Jackson (VO) v Canary Wharf Ltd concerned a number of floors in Canary Wharf’s iconic tower at 1 Canada Square. In a stinging rebuke by the Upper Tribunal, the Valuation Office Agency were reminded that “if premises are not capable of beneficial occupation, they are not a hereditament” for the purpose of business rates. Andrew Corkish (VO) v Fiona Bigwood related to substantial equestrian facilities, to Olympic standards, which included a large indoor arena for training purposes and a stable block to accommodate at least 28 horses but were never operated as a business. Annexed to a dwelling, the Upper Tribunal, held they were not rateable as they constituted “an appurtenance” to the dwelling and, therefore, domestic. In Ludgate House Limited v Andrew Ricketts & London Borough of Southwark the Upper Tribunal dealt with an extremely large, multi storey office on the South Bank which had been vacated awaiting demolition but was occupied by property Guardians who lived in the property as their home. The appeal was allowed finding that, whether the Guardians had licences or tenancies was irrelevant to the question of whether business rates were payable; what mattered was how the property was used. As the property was used wholly for the purposes of living accommodation, the decision of the Valuation Tribunal was overturned finding that council tax, not business rates, was the appropriate tax.
2019 CASE LAW REVIEW
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