Business rates are currently high on the political agenda.
In England the Government’s Treasury Committee is in the middle of an inquiry into Business Rates. The Committee is examining how Business Rates policy has changed, alternatives to property-based taxes such as the proposed digital services tax and how changes to Business Rates could impact businesses. Commenting on the inquiry, Nicky Morgan MP, Chair of the Treasury Committee, stated “Many high street businesses are struggling to remain competitive. It has been estimated that 10,000 shops will close this year. Unless action is taken, closures could continue and job losses may soar”.
In Scotland the Non-Domestic Rates (Scotland) Bill has been introduced to implement many of the recommendations of the Barclay Review of Business Rates. In Northern Ireland the Department of Finance on 9 May announced its own review stating that “in recent years significant changes have taken place in our high streets and town centres. It is critical from a business perspective, as well as a government funding perspective, that our rating system is capable of responding to this wider process of change.” In Wales there is an ongoing review of measures to Tackle Avoidance of Non-Domestic Rates as well as reform to the rates appeal system.
It is no coincidence that the current high level of political intervention on Business Rates coincides with both the dissatisfaction with business rates and the level of the charge also being at an all time high. In all the regions of the UK the UBR/rate poundage is now above 50p in the pound. In parts of Northern Ireland such as Belfast it is now over 60p in the pound.
The modern Business Rates system which commenced in 1990 saw the Government take control of Business Rates away from local Councils and the establishment of a national Uniform Business Rate (UBR) of 34.8p. Unlike other taxes though where the tax rate is largely fixed the UBR changes every year and has been permitted to increase from roughly one third of a property’s rental value in 1990 to one half today. Had the level of the UBR remained at its original level then it is unlikely that rates would have become such an issue for so many businesses.
A further criticism of Business Rates is how slow the system is to respond to changes in rental values. With Rateable Values currently based on rental levels prevailing over 4 years ago in many locations there is a disconnect between current rents and the level of Business Rates. The Government has, however, just introduced the Non-Domestic Rating (Lists) Bill 2017-19 which will bring forward the next Rating Revaluation in England to 1 April 2021 and to move the cycle of Revaluations thereafter from 5 yearly to 3 yearly.
The Government failed, however, to take the opportunity to adjust the actual valuation date for the Revaluation which is still to be two years before the Revaluation i.e. in April 2019. It could have adopted a valuation date just one year before the Revaluation which is exactly what is planned in Scotland for the 2025 Revaluation.
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Many high street businesses are struggling to remain competitive. It has been estimated that 10,000 shops will close this year