Business rates campaign: Let's halt the rate-rise blight that's choking our businesses

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For years, business rates have unfairly punished successful firms, staunching their growth. London has suffered the worst. Today, the Standard calls for a wholesale review of this most punitive and regressive tax on jobs and growth

How would you react if your landlord told you he was going to double your rent? Spare a thought for New Bond Street fashion store Belstaff, one of tens of thousands of businesses across London and the South-East facing a cudgelling from the Chancellor from soaring business rates over the next five years.

The luxury retailer’s bill is going up from £820,800 last year to a staggering £1.4 million in 2019-20. This is under a system which sees the capital filling the Treasury coffers with nearly a third of the £24 billion in rates levied last year while large northern cities including Leeds and Birmingham have seen their contribution fall, according to figures seen by the Evening Standard.  

The outcry against business rates — an annual tax that companies have to pay on their property — is ever louder. In England, there are 1.8 million properties liable for business rates. Of that total, 296,000, or 16%, are in London; yet they will pay 29% of the country’s tax take, a study by business rates expert Paul Turner-Mitchell shows. Department for Local Government figures show that the 32 London boroughs and the City of London will pay £6.9 billion of the £23.67 billion collectable in 2016-17. That’s £60 million more than last year.

The figures show that businesses in Westminster alone will pay out more than £1.7 billion while Camden’s collection of independent traders and tech start-ups will foot a £525 million rates bill. The West End’s Dover Street will see a staggering 415% rise with Brixton, Westfield London and Southall also hit. 

The subject has become politically charged over the past eight years as the tectonic plates of Britain’s property market have shifted. Since 2010, nationwide business rates have been calculated using the sky-high rents of pre-recession April 2008. But as rents in London have recovered and risen further, they haven’t in the rest of the country, stoking fears rates bills will force stores to shut on High Streets already under pressure amid the rise of online shopping outside the capital. 

Delays to the revaluation of rents and promised reforms have made the issue even more thorny. From 2017, rates will be based on rents as of April 1 last year, meaning central London businesses will pay the price for the imbalance in Britain’s economic recovery towards the South-East. Retailers will be told in October what their bill for next year will be. Research by Colliers shows 324 of 431 UK retail centres will see a decrease while 76 — all in London and the South-East — face rises. 

In March’s Budget, Chancellor George Osborne appeared to have answered long-running cries — particularly from retailers — for help, agreeing reforms to the system. However, he has been accused of not going far enough and retaining a key tax-raiser in his bid to gain a surplus in the public finances by 2019-20. Reforms in his overhaul of rates included changing the frequency of revaluation to every five years and using the Consumer Price Index, rather than the Retail Price Index, to measure  inflation. But neither move kicks in  until 2020. 

“Four years is a long way off and this is one of our biggest overheads,” says Gavin Haig, chief executive of the motorbike jacket brand, which has a five-storey shop and offices in New Bond Street and is eyeing a City flotation. “The point is that, while the landlord enjoys the benefit of the value in the property rising, as the occupier we see none of that but our rates rise along with the rent.” Haig adds that rising rates are preventing him from employing at least four extra store staff a year and “could force out the small businesses on New Bond Street which create its character”. 

It’s not just in the West End that London’s retailers are bearing the brunt of the issue. Gareth Jones runs chocolatier Alexeeva & Jones, and changes to the system have made it tough to compete. His bill has gone up from £1540 a month to £1930 but does not qualify for rates relief as the rateable value of his store in upmarket Notting Hill is above the new £15,000 threshold. “If you trade from an affluent area, then you are shut out of it, which makes it harder for independents compared to chains which can draw on revenues from elsewhere,” Jones says. 

It is estimated that sweeping industry change, including rates, will cost one million retail jobs by 2020. There remains a huge backlog of 280,000 rates appeals outstanding at the overworked and understaffed Valuation Office Agency (VOA) as businesses claim their properties have been wrongly evaluated. A select committee this week revealed that £1.3 billion of taxpayers’ money is not being invested in transport and housing, but instead spent on dealing with rates appeals. A Supreme Court decision last month forced an estimated 20,000 business rate payers to withdraw appeals as they no longer qualified for long-standing bulk discounts. 

John Webber, head of rating at property agent Colliers, argues: “Sixty years of pragmatism is being washed down the drain just so firms up and down the country can be milked for more money.”

As a result, Tower Hamlets is expected to gain £17 million through business rates from Canary Wharf over the next two years. Westminster had the highest number of outstanding business rate appeals nationwide in the second quarter of last year, at 10,300, with the City (6920), Tower Hamlets (5510), Camden (3570) and Hillingdon (2840) all in the UK’s top 10. 

The issue is not confined to retailers. The shape of London’s offices market is also changing because of rates. Property agent JLL believes the cost  difference between traditional City offices and increasingly popular locations including Stratford, Shoreditch and King’s Cross is narrowing and businesses are casting the net wider. “Some are using a hub-and-spoke model where they keep the headquarters in central London but carve out functions into towns in the South-East,” says James Finnis, head of JLL’s South-East agency.  As such, the pharmaceuticals industry is increasingly operating from the M4 corridor near Heathrow while Cambridge’s status as a tech hub is well-established. 

“Rates are increasingly part of the decision where businesses choose to rent,” adds Finnis. “It’s like buying a house — you check the schools, transport and prices. Rates are there with rents and the service charge.” In line with house prices, the rates bill of businesses around almost every Crossrail station is also forecast to rise. 

So what’s the solution? Plenty have been proffered. In its Manifesto for Business Rates Reform, Colliers calls for revaluations at least every three years by 2023; increased funding for the VOA and for the “ironing out inequalities where small business pays a higher proportion in business rates”.

Says Jones: “I’d take an axe to the current system and overhaul it. You could offer businesses coming into new premises a period rates-free, like you can negotiate with landlords on rents, to get yourself established. Or make it more like income tax where certain types of businesses in certain types of area are in a band, rather than one size fits all.”

Government is hoping a devolution of the responsibility for rates, due in 2020, could be a game changer. The theory is that by allowing local authorities to reduce rates (and raise them by 2%), they can help their local economies as they see fit. Liverpool and Greater Manchester will begin a pilot from next year. But Jones is not hopeful: “The problem is, the councils say their hands are tied by central government and vice versa — it’s always somebody else’s fault.”  

The city’s next Mayor and the under-pressure Business Secretary Sajid Javid have some thinking to do.



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April 14, 2016 |
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