February 2013: A review of Business Rates in England was scheduled for April 2015, but following a recent announcement by the Government, the review has been postponed until April 2017. This has led to an outcry as current business rates are based on property values in April 2008 when the market was at its pre-recession peak.
A rates revaluation would have allowed areas and sectors that have suffered from the recession to benefit from lower rateable values. Instead, businesses will now have to continue paying rates based on rental values in April 2008, when values were at their pre-crash peak, for two extra years with annual increases based on RPI up to 2017.
Many retail centres in towns and cities across the UK have seen significant falls in rental value since 2008, with some of the worst hit regions falling as much as 50%. Other than a handful of exceptions, London and parts of the Home Counties have been the only retail areas to see rental values increase, rising by up to 25%.
The Government describes the move as “backing business” by “helping them compete”. However, a rates revaluation would shift the burden from those who are suffering to those who are prospering. By postponing the revaluation, Government is not allowing the downward adjustment that would otherwise take place for suffering retailers, and this will have a negative impact on retailers’ performance, further delaying a much-needed high street resurgence.
The Government’s attempt at packaging this as a bonus for businesses is grossly misleading. Business rates income contributes about 5% of all tax revenue. At 47% from April 2013, this makes business rates the highest level of corporate tax in the UK, and is amongst the highest levels of local property tax in the European Union.
For many businesses this decision means their rateable value will remain at levels aligned to the highest peak in the property market, well above current rental values. However, the deferral is not bad news for all ratepayers. Some retailers, such as those located in London and parts of the South East, and other sectors including garden centres, where rental values have been far more stable, will benefit from the Government’s decision. The impact for them will be a liability increasing in line with RPI and not based on rental values.
Allen Evans, Partner