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Viewpoint - 24/06/2019

Business rates system needs big overhaul

Philip Clarkson, Director of Business Rates, has been in the rating industry for 40 years. Here he provides his account of the major changes he's witnessed during that time.

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When I started my first job in business rates 40 years ago, few people had heard of desktop computers.

Now, the sheer convenience of online shopping via smartphones and connected devices is changing the face of the High Street forever and forcing some retailers to close their doors.

Pubs and restaurants also face unprecedented challenges as they grapple with cost pressures alongside a dip in consumer confidence and spending.

But there is one common theme uniting all town and city centre establishments – their plight is made worse by a business rates system that is too slow to adapt to changes in the retail market.

In my four decades of being involved with the system I have never felt so strongly that it requires urgent reform.

The two-year postponement of the 2015 revaluation of all properties for business rates could not have come at a worse time for the retail property market. The Government ignored warnings from business rates experts at the time that this would delay much-needed help for beleaguered businesses.

The upshot was that High Street occupants continued paying rates based on levels of value set at the top of the retail market in 2008.

The Government has belatedly introduced three-yearly revaluations rather than five from 2021, but with another two years to go until the next revaluation, it might come too late for many businesses.

It was not surprising that the Chancellor used his Budget speech last October to announce business rate relief for independent shops and restaurants operating from premises with rateable values (RVs) of £51,000 or less.

But he was tinkering with the system and not providing the radical reform so desperately needed.

The relief is likely to benefit a butcher in Otley or Morley, for example, but not a fashion retailer in Leeds city centre, where few premises will be rated under £51,000. It fails to help the bigger retail employers, where much of the well-publicised pain is being experienced.

The system needs a complete shake-up so that it is quicker to adjust to the market, encouraging businesses to flourish rather than placing a burden upon them. One change that could be made in 2021 is to abolish the transitional system, which has applied since 1990 and limits the effect of RV reductions.

For 2019/20 the business rates multiplier has exceeded 50p in the pound for the first time ever. This means that this tax has increased in real terms by 45% since its inception in 1990, when it was only 34.8p in the pound.

The Government must realise that the business rates system is not a cash cow providing it with a stable income. Instead it needs to accept a reduction in the amount currently collected from business rates (set to be £30bn in 2019/20) and provide specific assistance to the retail sector. It can do this by ensuring that the fall in RVs that will occur in 2021 results in an immediate fall in rates payable with no transitional system in place that limits the benefit of the RV reductions. 

The rating system seems destined to remain in place for the immediate future but the Government needs to take radical action and allow the full effect of the fall in retail values to be felt. This would give the retail sector the assistance it urgently requires.


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