Martin Davenport, Partner and Head of Business Rates at Hartnell Taylor Cook and former President of the Rating Surveyors Association comments on finding a solution to broken rates system.
“I’m not the first person to argue that our business rates system is ‘broken’, and a recent BBC analysis has shone light on yet another crack in the crumbling structure. It found that councils across the UK are “losing out on millions of pounds” due to empty business rate relief. Councils’ worries are understandable: they are stuck in a dichotomy, needing income vs supporting local businesses. But the current system is pitting them against struggling businesses. We must find a mutually beneficial solution, writes Martin Davenport, Partner and Head of Business Rates at Hartnell Taylor Cook and former President of the Rating Surveyors Association.
Whether a local councillor, politician or customer, we should support retail. Unfortunately, online shopping is a significant threat to the high-street and it’s difficult to know how to combat this. The current system is harsh on struggling businesses and landlords. Business rates, designed to be a tax on occupation, are currently taxing owners or occupiers at the same rate regardless of whether the property is occupied or not – unjust, especially when rates may be the very reason some properties are empty!
Empty rate relief only applies to the initial 3-month period after a property becomes vacant, intended to give landlords time to find new tenants before 100% rates are applied again (a window that, in the current climate, simply isn’t enough). But, as well as being concerned about this gap in funds, local councils should look further down the track. A tsunami of refunds is likely to come next year. We are now three years into a four-year cycle and very few appeals have been lodged (only 300 are currently with the valuation tribunal).
Is there a solution that appeases both councils and retailers? I think so. Central Government should ringfence a pot of funds for empty business rates, which local councils can deploy when needed. If independent retailers can prove to authorities that they require critical help, councils should be empowered to assign them emergency status, alleviating rates and dipping into this centrally funded pot to ensure they are not out of pocket. However, for this to really fly, retailers themselves must be made aware of the options available. For example, how many know that there is currently 33% relief on rates payable for retail premise subject to a threshold of £51,000 rateable value?
Boris Johnson is heading in the right direction, as we recently had confirmation that his proposed increase of retail rate relief from 33% to 50% will go ahead. But more can be done. The current £51,000 threshold should be increased to £100,000; this relief should be mandatory rather than discretionary and should not be connected to any limit on state aid funding, which would open up relief to some multiple retailers.
The Government is currently consulting on rates and positive news is expected in the next two or three months, especially regarding empty rates and retail rate relief. Watch this space. But, in the meantime, pressure on the Government to provide greater support to both local councils and retailers shouldn’t be dropped. What we really need is a reduction in Uniform Business Rates (UBR) – currently 50.4p in every pound – and to abolish downward transition. However, all of that said, who is going to pay for it?”