Business Rates – The Unfair Tax Part 2 The Need for Reform

There is a universal feeling that business rates are not fit for purposes and in need of reform.

Why?

• Business rates irrespective of the economy are fixed.
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• Business Rates is the only tax that is index linked and guaranteed to rise, irrespective of how a business is performing and regardless of economic conditions.
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• Revaluation should occur every five years, this is now overdue and won’t happen until 2017. Effectively this means businesses are overpaying based on peak pre-recession property values.. A revaluation based on 2013 rental values would have redistributed the liability for business rates more fairly.
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• There is now a disproportionate charge and Central London will be hit hardest by a 10% increase in Rateable Value costing an additional £2 billion in 2017/2018.
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• Some business occupiers are paying more in rates than rent. The fact that some tenants can’t reduce their rates bill has put pressure on Landlords to accept less rent or see tenants go bust.
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The delay in the Revaluation has had a marked effect on the retail sector in particular. Household names such as Woolworths, Habitat, Blockbuster and Jessops are no more. Walk around any shopping centre today and you will notice the number of empty units. Increasingly we shop online, preferring Amazon to Adams.

Online retailers contribution to Business Rates is very small compared to the high                    street operators.

What should be Done ?

• Downwards Transition should be scrapped in 2017 saving businesses hardest hit by the delayed Revaluation circa 20%.
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• The rise in rates is set using retail price inflation, RPI, which is generally the higher rate of inflation, compared with CPI. September’s RPI, which will be used for next year’s increase, was 2.3 per cent while CPI fell to 1.2 per cent. This means fthat business rates across all sectors will increase by £515 million nationally. RPI will take the 2017 UBR close to 60p by April 2022, which is an unsustainable rate for businesses to pay.
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• Small businesses provide less than 10% of the overall contribution to the Treasury, but are being over taxed .. Small businesses must be allowed to flourish to help grow the economy and create jobs without having to pay a disproportionate amount of tax. Choking off investment has consequences for economic growth, job creation and investment.
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• Empty rates are 100% of occupied liability and the current system costs more than it raises. 
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• Empty Property rates deter building – there should be better relief for empty properties.
• Transitional Increases and Rate rebates are a failure of the current system! More frequent Revaluations would create a more balanced and transparent Tax. The Netherlands has achieved this by creating a fairer, more responsive system.
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• Some older buildings are worthless on a rental basis of valuation. Has the rental basis of valuation had its day? Maybe it is time to adopt a different basis. For example property taxes are 5 x higher in the UK than those in Germany.
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The current system is unfair, unbalanced and is stifling investment and business growth. There is a need for major reform and ‘tinkering‘ with the current system is not the answer. Let’s see what the Government sets out in its proposals in March 2016, but with any major reform there will inevitably be winners and losers.

for more information on the 2017 Rates Revaluation email [email protected]