"The Chancellor must not miss the opportunity in Budget 2023 for fundamental business rates reform,” says John Webber Head of Business Rates at Colliers.
Whilst in the Autumn Statement the Government gave some concessions to pleas from the retail and hospitality industries, by freezing the Multiplier and abolishing downwards transition in the next revaluation, these measures are the just tip of the iceberg says Webber. “The Chancellor was, in reality, merely putting a sticking plaster on a gaping wound: the fundamental flaws of the business rates system remain and Budget 2023 is the chance to address them.”
These are the actions Colliers believes the Chancellor needs to take in his Budget on Wednesday:
Reduce The Multiplier (the UBR used to calculate rate bills) to around 34 p in the £. The current Multiplier is still unsustainably high and although frozen at 51.2 p and 49.9 p (for small businesses) for 2023-4, this is the first time a new list has started with a multiplier over 50p- which means as time moves on and the multiplier rises with inflation this figure will continue to increase.
The Multiplier has only been frozen at 51.2p for one year (2023/ 24). Business rates for retail and other sectors will therefore rise from April 2024.
Nowhere else in Europe do businesses pay half the rental value of premises in property taxes. Set at this level, business rates deter new investment in business. The current level is over 50% higher than the 34p in the £ when the UBR was first introduced in 1990 and we have long been saying it should be re-based to the level that businesses can afford. A lower UBR would reduce the barriers to entry, expansion and innovation for businesses and encourage growth. It could enable a broadening of the tax base, thus plugging any gaps in revenue for the Exchequer caused by a lower UBR.
Extend Retail Reliefs Post 2024 The extension of business rates relief for retail and hospitality premises from 50% to 75% in 2023-4 is welcome, even though this only helps smaller retailers because it only applies to the first £110,000 of business rates paid. The OBR envisages that this relief will be removed from 1 April 2024, leaving such retailers with a massive tax hike at that point. We urge for a re-consideration and call for a tapering scheme to be applied at the least.
Reform of the Sticking Plaster Reliefs System and Remove Business Rates Deserts Re-basing the multiplier to something affordable will mean that the whole question of reliefs can become simplified and resolved, as not so many businesses will need to claim them. Small Business Rates is vital to support the economy and local businesses in the community, particularly whilst the multiplier is so high. However, many reliefs have been handed out by politicians culminating in a complicated system difficult to navigate for ratepayers. The business rates system currently comprises 12 reliefs and, in some places, we have business rates deserts- about 800,000 property occupiers who pay nothing in business rates at all due to the reliefs system. Surely everyone that benefits from public utilities and local services needs to pay something- but at a fair rate. We believe reliefs should be reviewed at least every three years.
Extend Empty Property Rates Relief to Twelve Months and to Other Sectors and accept that the significant amount of long term empty commercial property in England is due to a lack of market demand and long-term socio-economic factors, not because the landlord wants to keep it empty. The Chancellor should extend six months empty rates holiday to twelve months and extended from the warehouse and industrial sectors to include retail and offices.
Introduce Annual Revaluations - By implementing yearly revaluations, business rates bills will accurately reflect the dynamic movements of the market and allow occupiers to benefit immediately from adjustments to rateable values. The increased occurrences of significant and unforeseen events, such as the pandemic and the war in Ukraine, further emphasise the need for a system that is able to more accurately react to rapidly changing economic landscapes.
Review Plant and Machinery- There should be a wholesale and then regular review of what is or is not rateable in relation to plant and machinery. All plant that is an integral part of the trade process should be exempted from business rates as should be investment in new technology that make businesses more green/ sustainable. This would allow the rating system to complement government policy and targets.
Improve Transparency from the VOA - The valuation process that allocates properties their rateable values is not transparent. The VOA does not share the evidence that it uses to form the basis of its valuations. The only way business occupiers not happy with their rateable values can access this evidence is by challenging the valuation through the “check challenge appeal” system (CCA), a lengthy and costly process for the occupier. We expect that many challenges to the valuation process will be submitted over the coming months following concern that the VOA uses flimsy evidence when conducting property valuations.
Reform Unfriendly and Ill-Equipped Appeal System- The current system makes it so hard for businesses to appeal their assessments. Recent tinkering with (CCA) and removing the Check part of the system has only added to the confusion. The request for the annual provision of information from the ratepayer, not only confirming physical details of the property on an annal basis but also updates on rent and lease and trading information has also added a significant administrative burden.
We believe the current system of appeals is therefore not fit for purpose – only those companies that can afford professional advisors get to the right answer. The system should be transparent, easy to access for all and allow appeals to be resolved in 12 months.
Address Rogue Rating Advisors by Regulating the Ratings Industry- Unhappiness with rates assessments and a complicated process of dealing with appeals system had driven smaller businesses into the arms of rogue rating agents who promise to negotiate lower bills, but often disappear after taking an upfront fee. We urge the government to regulate the industry and set up a register of rating advisors, similar to the FCA, to make sure the cowboy and criminal element that prey on such businesses are kept at bay. Until reformed, businesses need the best advice from professional advisers if they are to navigate the complex appeals (CCA) system. We believe the issue of rogue traders will only get worse when the government introduces annual returns and imposes “the duty to notify” since this will put extra administrative burdens on rate payers who will need even more help to negotiate the system.
Webber concludes: “What we still need is a well-managed and transparent business rates system, that encourages rather than punishes businesses. In its 2019 Manifesto, the Conservative Party promised, 'To cut the burden of tax on business by reducing business rates. This will be done via a fundamental review of the system'.
"So far this has not been fulfilled. Far from cutting business rates, this year’s list will show a general 7.1% increase in rateable value.
"And according to the OBR report the Government is forecasting that income from business rates will rise to nearly £36 billion by 2027/28 (from £28.5 billion in 2022/23), which appears contrary to the Conservatives’ manifesto pledge. The Retail and Hospitality Sectors are still in line to make a major contribution to that increase.
"We urge the Chancellor not to ignore the call for urgent reform and use Budget 2023 to encourage investment and growth and help retail and hospitality businesses floundering in this over burdensome and unfair system.”