Despite the carnage on the high street, none of the political parties appear to have come up with credible policies to tackle the “broken business” rates scenario we are seeing at the moment, says John Webber, Head of Rating at international property consultancy, Colliers International.
At a time when higher property costs and the move towards online shopping have led to retailers with 10 or more stores to already close 5834 shops in 2019, (up 77 per cent on the whole of last year, according to the Centre for Retail Research), Webber says it is “extraordinary” that so far nothing credible has been suggested by any of the parties:
The Conservatives’ promises to cut the “burden” of tax on business by reducing business rates and offering a fundamental review of the system falls on deaf ears. Firms have been promised action before and there have been numerous reviews which have led nowhere.
“One can only question why, given the cross-party Treasury Select Committee into business rates has only just reported after an 8-month period, the Conservatives have just not said they will look closely at its recommendations and implement if they get into power. What is the point of holding yet another review?” asks Webber.
A future Conservative government has also said it would extend the retail discount on business rates to 50 per cent next year in England for those properties with a rateable value less than £51,000, as well as extending the discount to grassroots music venues, small cinemas and pubs.
But as Webber points out, “Conservative plans to help small retailers, pubs and music venues do nothing to the big retailers who carry the bulk of the business rates burden and have been the ones closing stores and making redundancies – the House of Fraser, the M&S, the Debenhams of this world”.
Retailers pay an unproportionate slice of the UK’s £26 billion net business rates bill and this year are expected to pay in the range of around £7.625 billion. Much of this falls on the larger retailers. This burden is based on the size and value of their properties, no matter how well their businesses are doing. As a result, many of the bigger chains have been hit either by business rates hikes, as in central London, or, as in many of the regions by the delayed downward phasing introduced after the 2017 Revaluation, meaning many are paying rate bills much higher than they should be.
Added to other costs such as the MLW and apprenticeship levy, too high business rates have been the last straw for many as the raft of CVAs, administrations, store closures and jobs lost have shown.
And “while fundamental review of reliefs is essential, the Conservatives are only complicating this relief system even further with their latest suggested give-aways. Ignoring the ever rising UBR- the multiplier, the elephant in the room, will mean that their plans do not even scratch the surface”
But turning to Labour and the Liberal Democrats the picture isn’t any better.
Labour has also said it would launch a review into business rates and has outlined a plan to turn around the decline of the high street by looking at a “land value tax” on commercial landlords, as well as developing a new “retail sector industrial strategy”.
The Liberal Democrats are also calling for a land tax with plans to scrap business rates altogether and replace with a ‘landowner levy’ that would help “breathe new life back into the high street.” With plans to tax landowners rather than businesses, they claim 500,000 small businesses across the country would be spared the burden of property taxation.
According to Webber, “This call for a commercial land tax by Labour and the Liberal Democrats is naive in the extreme and is simply not the answer either. Business rates were set up to pay for the amenities and services that business occupiers use in the community -so there should surely be no dispute that such businesses should pay something for these services?
And to replace the levy with a total land tax on landowners is inequitable and would impact on land values. It would discourage investment into property generally – and among other things would not be good news for pension fund holders.
He continues, “The additional tax could also backfire. Landlords would most probably recuperate the money by hiking up rents charged to occupiers. We would therefore have a system whereby businesses would end up paying more to the landlord but unlike the present system would be unable to appeal against their combined rent and rate bills that the landlord would introduce. So how would they benefit?”
“And how would you calculate it? The idea of using rental values of land as suggested would undermine the credibility of any values arrived at, given there are very few transactions based on land rents to date.”
Both Labour and the Lib Dems are in “Alice in Wonderland” claims Webber. “They are suggesting is a complicated system, based on no actual evidence and it is very difficult to see how it would work in practice.”
And turning to the Brexit party:. They claim Business rates would be replaced with what they says would be a simpler system to help small high street retailers outside London, funded by an online sales tax.
But as Webber points out, “Again the emphasis on the smaller retailer misses the point about who are the main sufferers in this broken system. And an online sales tax could very well hit those bigger retailers who sell by both store and on line – which is why Next, for example has campaigned against it.”
It could also backfire- since while it might make the system fairer with regards to giants like Amazon, it could actually penalise smaller online retailers and would do little to save the high street. The evolution of technology has enabled e-commerce to become increasingly easy and efficient, meaning that consumers are not necessarily going to return to the high street should online prices rise. What’s more, consumers would feel the impact of price rises, which would be passed onto them.
So, whilst no party seems to have grasped the issues, what is the answer?
Webber’s advice is very simple. “Implement November’s Treasury Select Committee report and introduce fundamental reform, not just a papering over the cracks.”
He points out that the report followed a major review – it heard both verbal submissions as well as 140 written representations from businesses impacted by the business rates tax. And its recommendations were clear-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% tax. If the multiplier was reduced to a reasonable rate- say 30- 35p in the pound a lot of the squealing would go away;
- overhaul of CCA, the badly thought through and “unacceptable” appeals system, which Colliers has long been campaigning for;
- give more resources to the VOA so that it can function properly;
- simplify of the “increasingly complex web” of business rates reliefs that has exacerbated the system’s flaws. A proper review of reliefs- so that everyone pays something, but at a lower rate- is surely the answer.
In addition, Webber adds an immediate abolition of the harmful downwards transition that has impacted on many of the larger retailers and a move as soon as possible to annual valuations, once the VOA is properly resourced VOA to deal with this.
He concludes, “Unless business rates are properly reformed, as recommended by the Treasury Select Committee Report, none of the parties’ plans will sadly do anything to counter the 85,000 retail jobs already lost or stop the high street seeing further store closures.
It is massively disappointing that none of the political parties appears to have heard this message- or if they have heard- they keep choosing to ignore it. “