Business rates – an ongoing fiasco

The furore around business rates in the UK has dragged on long enough – and it isn’t going to be resolved any time soon. This outdated method of taxation has curtailed retail’s recovery – and the piecemeal offerings on business rates proffered by the government since 2010 simply don’t do enough to counterbalance the unfair burden shouldered by retailers nationwide. The latest official government line on business rates came in June this year, in response to the Business Innovation and Skills Select Committee’s inquiry on the UK retail sector. The most notable line is probably this one: Due to the lead-in times required under the current system and to the time taken to change the relevant primary legislation, it is not possible to implement any changes to the way the 2017 revaluation will be carried out.”  The full explanation of the methodology behind the way revaluations are ‘carried out’ is here – and it is particularly worth looking at Tables 1 & 2 with regard to the relationship between drop in rateable value and application of tax increases. The fact that no changes will be made to the methodology before the next revaluation means that all eyes will be on the VOA for their update on commercial property values in April next year. Business rate bills for 2017 will then be determined by comparing that valuation with April 2008, and applying increases to the bill for any premises whose rateable value does not fall by at least the national average. Retail landlords and tenants should be sure to keep a firm eye on the overall rateable value applied to London office property – as it was the forecasted drop in the value of those premises which effectively provided the backdrop to the postponement of the revaluation. The VOA estimated in November 2012 that the total value of London offices would drop 26% from April 2008 to April 2013. This meant that UK commercial property overall would drop in value by 14% on average across the same time period – and any premises which dropped in value by less than that amount would be subject to a business rate increase. The merits of this method are worth questioning. Despite the 14% drop in commercial property values, the amount garnered by the government from business rates would not have dropped at all – much less by the same amount – such is the reliability in income terms that this tax provides. From the Treasury’s point-of-view, altering the method of calculation of business rates would be far from ideal, no matter what lip-service they might pay to struggling businesses begging for change. The tax comprises just over 4% of the government’s annual revenue at £26bn; and last year actually gave the coffers a boost on predicted income to the tune of £600m. At a local level, business rates provide around 11.5% of council income – with the cost of collecting those taxes at around £90m. Council tax, by contrast, provides 16% of local government revenue, but costs over three times as much to collect; and has a collection rate of 97%, compared to 98% for business rates. With that in mind, one can understand the government’s reluctance to implement instantaneous, widespread change, and instead look to offer concessions on business rates with certain applicable criteria – but it plainly isn’t enough. It’s like trying to deal with a rotten tooth by arguing with it. You just need to yank it out. Reform is essential, but from what was said in summer this year, we won’t get it until at least 2017. An enormous shame, as with shoots of economic recovery now evident, this would be the perfect time to start afresh and bring retail property taxation into the 21st century.