A complete re basing of the multiplier and a reduction in the time between revaluations has been recommended by Colliers International.
The comments came as the Consultation for Part One of Business Rates Reform in the UK closed.
John Webber, head of business rates, Colliers International, said: “It’s all down to the Multiplier. The current multiplier has reached an unsustainable level of over 50 p in the £1, and directly impacts on the decisions made by many retail and leisure operators as to whether they open, close or downsize their bricks and mortar estate. A tax that is now so high it impacts on these decisions, which in turn affects employment and investment, has to change.
“Re-basing the multiplier to something manageable, that businesses can afford, will mean that the whole question of the myriad of reliefs can become simplified and resolved also.”
Colliers said that, in non-Covid times, business rates provided the government with a net tax take of about £26bn, of which the Retail Sector was the largest single sector, paying between a quarter and a third (around £7.625m) of the total tax bill. This is even though the gross value added by retail to the national economy was less than 10%. Together with the hospitality sector, the tax contribution was around £10bn.
Colliers’ arguments were as follows:
The Multiplier
- The Multiplier ( the figure the rateable value of each property is multiplied by to create the rates bill) is just too high. At a current level of just over £0.51, it is in effect a 51% tax on the rental value of commercial premises, and for many is clearly unaffordable. As we have seen with income tax, once the tax rate reaches or exceeds 50% the amount collected reduces significantly.
- The government should now reduce the Multiplier to 1990 levels when the net amount collected in business rates represented 31% of the total RV in the Rating List. A 30% tax would be more manageable for retail and leisure businesses to cope with.
- The multiplier has crept high because of “slippage” between revaluations and annual RPI increases over the last 30 years. The Government should re-base the multiplier at every revaluation to avoid the ‘creep’ upwards.
- We do understand that inflationary increases take place each year to pay for public services but as we believe the revaluation cycle should be no longer than 3 years and ideally annually- then the question about annual inflationary changes to the multiplier becomes academic.
- We need to Introduce some political accountability for the annual increases in the multiplier.
Currently central government places the blame on Local Authorities’ financial mismanagement and Local Authorities rightly state that they have no control over how the multiplier is set. There is no ownership and correlation with ever increasing bills. A clear three-year business plan should be set out by local authorities and explained to the electorate so people could see where the money raised by business rates is being spent.
- Reducing the multiplier will also reduce the need for so many reliefs. Granting reliefs is often a politically expeditious way of ‘buying popularity and ‘votes. Such reliefs have been introduced to counter the rise of the multiplier and high business rates bills. Ironically the introduction of reliefs has just led to the increase in the multiplier to subsidise them.
- Webber says we might also consider a system in which landlords pay something in business rates even when the premises are occupied. Many European systems levy an annual charge on landlords and even a 5p or 10p in the £1 levy would directly involve landlords in paying for local services while reducing the incentive for higher and higher rents which inflate the Rateable Value.
Turning to Business Rates Reliefs, Webber said: “Short term decisions to grant reliefs have been made by all political parties over the past 30 years - it’s the reason we are in the mess we are today. Therefore, the whole question of reliefs needs to be properly overhauled and re-balanced to meet the needs of modern-day businesses.”
- Small Business Rates Relief: Reliefs amount to £7.44bn or 23% of the approximate £32bn tax revenue. SBRR is the smallest element of reliefs and until current multiplier levels are tackled, Colliers believe it is vital to support the economy and local people/ businesses in the community.
- Reliefs should be reviewed every Revaluation cycle – which should be at least every three years. And once the multiplier has been rebased and reliefs reduced, local authorities and business will be able to look at targeted levies for specific infrastructure projects that landlords and tenants could contribute to.
- Empty Property Rates Relief should be extended and not curtailed in the current climate. Contrary to the Lyons Review, long term empty commercial property is not due to landlords’ unwillingness to let properties, but a lack of market demand and long term socio-economic factors. We call for the Government to extend the 6-months empty rates holiday from the warehouse and industrial sectors to the retail and office sectors also.
- Reduce Relief Hand Outs Once the multiplier has been rebased at the ‘correct’ 30% level , the need to hand out so much money in reliefs which will be significantly reduced- giving the opportunity for local authorities and business to look at targeted levy for specific infrastructure projects that landlords and tenants could contribute to.
- Central Government still needs set the majority of reliefs to ensure an equal playing field with additional discretion (at local cost) available for those local councils wishing to encourage/support specific areas. Too much local discretion leads to a postcode lottery and could see retailers and employers concentrating on certain areas leaving others with vast amounts of empty properties, limited retailers/employers and perhaps a prevalence of charity shops.
- Abuses The greater the rates burden and the greater the number of reliefs the greater incentive to abuse the system. The 52% tax we have today is the equivalent of income tax reaching that level and collection rates plummeting.
Webber concluded: “This first part of the government’s call to evidence allows us to give a generic view on the whole system. In the second part of the consultation we will be able to be industry specific and look at ways in which any reduction in the business rates tax take is to be replaced, whether by an online tax system or by other means.
“Business rates form a vital part of local authority funding. However, the system has got old of kilter with the needs and current business and economic climate. A 50 % plus tax, likely to rise further is just unsustainable and will lead only to further business closures and job losses, particularly when the Covid-19 business rates holiday for the retail and hospitality sector come to an end next April.
“We welcome the call for reform – but call on the government to come to its conclusions and offer solutions quickly. In this period of pandemic, retail and leisure businesses are making their decisions now about whether they stay open or close. Increasing costs, of which business rates play a big part will be a significant factor in the decision making. We call for a drastic cut in the multiplier and subsequent business rate bills and we urge that this is done sooner than later. Next year or even by the November Budget could just be too late – and the government may find the golden goose of business rates really has been well and truly cooked.”