The Committee concluded that business rates in their current form are not fit for purpose and calls on the government to carry out a wholesale review of the rating system. It suggests that this review should assess if retail taxes should be based on sales, rather than on property, and if the retail sector should have its own form of taxation.
Business rates need to be made fairer
We agree that the rating system for commercial real estate needs to be made fairer. Calls to abolish the rating system are understandable, but they will carry little weight with ministers unless a viable alternative is proposed.
Rates currently yield £26m in taxation towards local services. Without rates on business properties, which are relatively easy to identify and collect, an alternative form of local taxation would be required. For this reason, the government will be reluctant to abolish the system.
The government’s decision to delay a revaluation until 2017 and the imposition of empty rate charges, which have been in place since 2008, represents a double whammy for the property industry. By the time of the next revaluation, demand will outstrip supply and rents will rise in some prime locations.
In addition, the polarisation between prime and secondary commercial space will see an overall shortfall in the overall rateable value pool, which will force the government to significantly increase the Uniform Business Rate (UBR) – potentially above 60p.”
Our five point plan
As a result of the structural flaws in the business rates regime, we propose the following five point plan for reform:
- An early revaluation to properly reflect the economic decline of many sectors and locations since the last valuation date of 2008
- The abolition of empty rates to encourage reinvestment
- An exemption of small buildings with a rateable value of less than £20,000 to be replaced by a nominal annual charge. This would require a much smaller bureaucratic input from government
- Self assessment of rateable value by business, subject to Valuation Office review and appeal
- A three yearly revaluation cycle going forward to ensure that rates properly reflect changes.
The key ingredients are: growth, reduced costs, fairness and self-determination for the ratepayer.