Business Rates: A broken system? - Tim Jones

There has been much debate about this national programme and how fair it is to those businesses who have to pay the bills.

For the government, it is an important part of the overall receipts as it generates around £30 billion per year.

Business rates are effectively a property tax linked to the underlying value of commercial premises. In addition to raising money for the Treasury, this also accounts for nearly 25% of all council spending power.

The system has been rightly criticised as it disproportionately effects sectors of the economy. There have also been real problems with the slow-moving nature of the process which is both ponderous and almost invariably out of step with real property values. The system should be the subject of a five yearly revaluation to make sure that it accurately reflects the real time economy. In recent years however this has proved to be such a slow process that high values have persisted when, in reality, bills should have been significantly lower. This has particularly been the case in the retail sector. One of the major concerns is that it effectively is a tax only raised from those who own premises. There are many who do not get caught by the system, such as, the online retailers – Amazon etc. who operate warehouses from remote locations and often from international basis, who pay little or nothing towards this tax thereby creating an unfair trading advantage.

It is nothing new that the woes of this process have been criticised. Several reports have been produced as far back as 2004. Sir Michael Lyons was appointed by government to undertake a comprehensive enquiry into the system. Little or nothing came from this. It was then followed by the launch of the “most wide-ranging review of national business rates in a generation” in 2015. Again, nothing significant appeared from this. Every year since 2020 a new fundamental review has been promised, but still many suffer from the same system that has become one of the biggest payments for many business premises occupiers.

It is worth noting that the government have introduced discount rates and exemptions for the smallest businesses. This certainly helps many small traders but still this proves to be a huge outgoing which is holding back investment in staff, equipment, and marketing.

Receipts are roughly apportioned between the major commercial sectors as 21% from retail, 23% from offices, 26% from industry and 30% from other sources.

Such as the nature of the current economic environment that it is inevitable that the demands for reforming this 'unfair tax' have never been louder. Many, particularly in the retail sector, say that this is crippling High Streets. It is certainly the case that many of the gaps we are now seeing in our High Streets are partly the result of this system. Nationally there have been over 6,000 stores closed in the last five years. Only in the last few days have we heard announcements that the Wilko Group will be closing 52 branches in the next few weeks, including three stores in Cornwall (Falmouth, Truro, and St Austell). The effect on real people’s lives is a tragic outcome from this – more than 1,000 people will lose their jobs because of these Wilko closures.

The problem with the system used is the 'multiplier'. This is the uniform business rate multiplied by the rateable valuable of the property. This is used to calculate the rates bill. This has risen from 34p in 1990 to the current level of 51.2p. During Covid, the government introduced business rate holidays for retail, hospitality, and leisure. This undoubtedly helped many to survive Covid lockdowns. All commercial businesses were awarded some relief until July 2021. This whole package however has now unwound, and the benefits will disappear by April 2024. It is estimated by the British Retail Consortium that this will add half a billion pounds to the cost of doing business. If this cost is added to increased energy bills and 9% staff wage rises, then it is easy to see how profitable trading will be difficult to achieve.

It may be the case that the government recognise how difficult trading conditions are and that they will extend the discount period for another 12 months. This is a big ask for them, as they have little or no capacity to support economic initiatives because the Treasury’s coffers are virtually empty. It is also difficult to see how the government can back out of this system. They have created a rod for their own back. To replace the full benefits of the current system would inevitably put pressure on other areas of tax revenue.

It is my view that now is the time to mount a major campaign and to use the current state of political volatility (particularly in the run up to the next general election – probably somewhere between May-October 2024), to mobilise the collective voice of business to ensure that this whole process is modernised. The main areas of reform which would be beneficial include reducing the multiplier, introducing more frequent revaluations – ideally every year but improving this to three years rather than five would help - improving the degree of transparency from the government’s Valuation Office Agency and reforming the appeal system, particularly the time it takes to successfully present a case and get an outcome.

A campaign to remove the system all together would be extremely difficult. Almost every country in the developed world has a form of property tax, the result therefore of abolishing the current business rate system would only result in it being replaced by something else.

Another area where fairness should prevail, is to ensure that all those who are involved in the online market are included somehow in this whole process. This would result in a more level playing field for High Streets and Town Centres.

It would also be more transparent if businesses could fully understand how paying this tax benefits them through public services. To most of us there is no real clarity as to where on earth this money is spent.

This whole matter is an important issue for business survival and profitability. A concerted campaign across Northern Devon to all our prospective new elected Members, would be a campaign worth fighting.