Is Boris Johnson Undermining the Treasury Select Committee on Business Rates with new proposals? Asks John Webber of Colliers International

20th November 2019, 1:54 pm

Rating experts despair of Conservative manifesto’s failure to grapple with the key issues of business rates reform despite recent expert recommendations

The worst fears from those who have read and welcomed the recent Treasury Select Committee report into business rates – that the next Government could well ignore them – seem to be borne out by the latest Conservative party announcements on the “broken” business rates issue.

Announcements from the Conservatives in which they pledge to reduce business rates for small firms in a bid to help “left behind” towns if they win the general election, totally fail to tackle the heart of the business rates problem, says John Webber, head of rating at real estate advisors Colliers International and at best will only be tinkering with the issue.

”Unless business rates are properly reformed, as recommended by the Treasury Select Committee Report published at the beginning of the month, these plans will do nothing to counter the impact of the 2017 business rates revaluation and introduction of downward phasing and simply won’t go far enough to help retailers struggling with their current rate bills.”

“It certainly won’t be enough to save the 85,000 jobs already lost on the high street, mainly from the bigger retailing chains. It’s unbelievable that the Conservative still can’t get to grips with the problem.”

The latest proposal from the Conservatives sound good in practice. They are designed to expand the Towns Fund initiative which the Government launched last spring to try to revitalise communities left behind by economic growth in affluent metropolitan areas.

Key measures in the package for revitalising high streets include:

  • Extending the retail discount on business rates to 50 per cent next year. For businesses with a rateable value of less than £51,000, this will increase the retail discount from 33 per cent to 50 per cent in 2020/21. This would be an effective £280m annual tax cut which would help small businesses in particular.
  • Cinemas and music venues will qualify for the retail discount on business rates for the first time. The move, costing around £5m, will help keep down their costs.
  • Pubs will benefit from a new £1,000 business rates relief designed to help them stay as vital centres of their communities. The move is effectively a tax cut for pubs worth £18m annually from next year.

Mr Johnson’s plans will also seek to widen the power of local communities in towns and villages to take over local assets such as pubs and post offices.

However, as John Webber points out such proposals simply do not go far enough in tackling the heart of the problem on the high street, and whilst they will be welcomed by those who would benefit – the smallest retailers, independent cinemas and little local pubs – they do not help the big retailers which carry the bulk of the business rates burden and have been the ones closing stores and making redundancies.

Retailers pay an unproportionate slice of the UK’s £26bn business rates bill and this year are expected to pay in the range of around £7.625bn. This burden is based on the size and value of their properties, no matter how well their businesses are doing.

Webber continued, “ The recent Treasury Select Committee report has been very clear in what it thinks the Government should tackle in terms of business rates reform- namely to tackle the multiplier (the UBR figure against which the rateable value of the property is multiplied to give the final rates bill)  which is still too high at 50p-55p in the pound and effectively is an unsustainable 50-60 per cent tax. The Committee called for an overhaul of CCA, the badly thought through and “unacceptable” appeals system with more resources for the VOA to be able function properly and for there also to be a simplification of the “increasingly complex web” of business rates reliefs that has exacerbated the system’s flaws.”

As far as Colliers is concerned, the Committee was spot on, in particular in its recommendations to look at the multiplier which Webber believes should be reduced to say 34p in the £1 as it was in the 1990s, and which would enable businesses to more easily meet their costs and more stores to stay open.

Webber also feels the Government should abolish downward transition, as introduced in the 2017 Revaluation. He cites the experiences of some of his clients including high street retailers who due to downward phasing are spending over £10m in their rate bills MORE than they should have done if their rates bill had been at their true level, over the four-year period of the current list.

“If the Government is serious about saving the high street it must abolish downwards transition and reduce the multiplier now. It needs to simplify things not make them more complicated. I hate to say it but without that, retailers in many of our towns will stay under threat, stores will be closed and jobs lost, despite all the fancy and well-meaning plans.”

“What I feel is very odd is that the Conservatives, when in government, commissioned the Treasury Select Committee which heard and analysed in some detail, both verbal as well as 140 written representations from businesses impacted by the tax. I am not sure what was the point of all of that if the political parties fail to listen to its recommendations and takes the drastic actions needed to be taken to mend what is a broken system.”

“We ask that the Treasury Select Committee’s recommendations do not get brushed under the carpet with the excitement over the Election and Brexit by all parties. The alternative is an uncompetitive trading environment and a high street full of more empty stores.”

Colliers’ Manifesto for Business Rates Reform includes:

  1. Immediately freezingany business rate increases. This year’s 49 per cent for top rises has proved unsustainable. Businesses already had to swallow a rise of 74 per cent plus inflation in the previous two years
  2. Immediately remove downward phasingof business rates payments enabling rate payers to pay their true rates liability now and not wait four years to do so. This could well impact on several decisions to either close or keep open stores in a number of regional high streets.
  3. Review and implement a policy to reduce the multiplier. (The UBR against which the rateable value of the property is multiplied to give the final rates bill.) This multiplier is currently around 50p in the £1 – so is an effective 50 per cent tax.  If it could be reduced to say 34p in the £1, as it was in 1990, many of the extremely high rating bills would be diminished into something businesses could meet.
  4. Look at the whole systems of reliefs. The current relief system is incredibly complex and has created business rate deserts in the country, where due to the system of small businesses reliefs, some businesses are paying no business rates at all for the services they receive.
  5. Introduce a fairer system of how the business rates tax take is funded– Webber suggests a rebasing of the multiplier could be paid for by asking all small businesses to pay a minimum contribution to the system and looking at other reliefs, such as agricultural reliefs which may need reforming, therefore spreading the load more evenly across the UK economy.
  6. Reform the appeals system– providing more support to the VOA to deal with existing appeals’ backlog. CCA (the new business rates appeals system) introduced last year has been described by Webber and other commentators, as the “car crash ready to happen” since it has introduced an over complicated appeal system that few can navigate.

 How a business calculates its business rates liability?

Multiply Rateable Value of the business with a ‘multiplier’ set by government. A multiplier is the number of pence per pound of rateable value that a business has to pay in business rates, before any relief or discounts are deducted.

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