The Government launched its fundamental review of business rates at Budget 2020 by publishing its Terms of Reference including its objectives of:
- Reducing the overall burden on businesses
- Improving the current business rates system
- Considering more fundamental changes in the medium to long term
In July, the Treasury published its call for evidence. Once the Government has considered all views, it intends to publish a final report setting out the full conclusions of the review in Spring 2021.
The review is wide ranging with the call for evidence comprising some 43 questions. There were two deadlines for providing responses:
- 18 September for responses relating to multiplier and reliefs sections
- 31 October for responses relating to other sections
Cushman & Wakefield Response
Underpinning our response were three desirable objectives, which if delivered, would significantly improve the current system for ratepayers:
The main points included in Cushman & Wakefield’s response are:
Introduction of a fixed and sustainable multiplier
The multiplier is currently re-based following revaluation, according to the shift in total rateable value, and then increased annually in line with inflation thereby guaranteeing total revenues. A fixed multiplier would mean revenue floating according to changing rateable values but provide greater certainty for ratepayers and re-establish the link between rental levels and rates liability.
The multiplier has increased in 1990 from almost 35 pence to over 50 pence for many ratepayers today. This continual increase is unsustainable.
A fixed multiplier needs to be set at a sustainable level with any subsequent loss of business rates revenue made up from elsewhere.
Consolidate the number of reliefs and ensure ratepayers benefit
The current significant number of available rate reliefs adds complexity and it is difficult for many smaller and unrepresented ratepayers to understand which reliefs they might be entitled and how they apply for any business rates relief. Many rate reliefs, such as downwards transition, also distort business rates leading to unfairness.
We recommended that rate reliefs should be introduced for short periods and/or aimed at single ratepayers due to personal circumstances.
Long term business rates reliefs or those aimed at whole sectors tend to influence views on occupation affordability leading to higher rents and ultimately benefitting the property owner.
Rates liability should reflect economic circumstances
Rateable value assessments and hence rates liability should reflect economic circumstances. The existing lengthy period between revaluations breaks the link between liability and affordability. Consequently, three-yearly revaluations should be adopted.
In addition, the current 24-month gap between valuation date and revaluation should be reduced to 12 months.
Rate liabilities in the last year of the 2010 and 2017 Revaluations are based on rental values 10 or 9 years old respectively. If our suggestions were adopted, rate liability in the last year of a revaluation would be based on rental levels no older than 4 years – not ideal but a significant improvement.
Improve transparency and data sharing
To improve valuation accuracy and facilitate shorter revaluations, the Valuation Office should have access to up to date rental and other relevant information. This could be done via an annual return perhaps modelled on the existing VORC system.
In addition, ratepayers when investigating the accuracy of their rateable value should be provided details of the specific rental evidence used by the Valuation Office to assess their property. Issues of confidentiality could be managed by limiting access to evidence relevant to individual rateable value searches.
Rating of plant and machinery stifles investment
A detailed review of existing plant and machinery regulations is urgently required to reflect new technology and processes. In addition, following the review, new regulations could support the decarbonisation of buildings rather than disincentivise investment as is currently the case.
There are significant practical challenges adopting a Capital Value Tax
Challenges include establishing who is the “owner” given HM Land Registry data is not comprehensive. In addition, there are relatively few clean commercial property sales (compared to rental transactions) and even fewer commercial land sales.
Furthermore, the collection and recover of Capital Values Tax would be far more challenging and costly compared to business rates.
Introducing an online sales tax could have unforeseen consequences
Although revenue from an online sales tax could fund a reduction in business rates multiplier, many ratepayers would not benefit since their online sales tax could be higher than the consequent business rates reduction.
Should an online sales tax be restricted to physical goods? The tax could be extended to a wide range of services but could stifle business innovation and competition.
The cost of an online sales tax would probably be passed onto the consumer leading to adverse wider economic impacts. It would also be regressive disproportionately impacting lower income households.
The Business Rates Review: Call for Evidence can be accessed here External Link: