Out-Law News 3 min. read

Review of "responsiveness and effectiveness" of business rates won't be enough for English retailers, experts say

The UK government's call for evidence on the "responsiveness and effectiveness" of business rates in England merely "tinkers around the edges" of a system in need of more fundamental reform, an expert has said.

As announced as part of last year's Autumn Statement, the government is seeking views from businesses and local authorities about how the administration of business rates could be improved after the next revaluation in 2017. However retail expert Tom Johnson of Pinsent Masons, the law firm behind Out-Law.com, said that it would be some time before retailers felt the benefit of any changes.

"While the discussion paper is, on one level, a welcome indication of the current political will for reform, it is difficult not to be cynical that this is anything other than political posturing," he said. "Retailers who are labouring under the burden of punitive business rates under the current system, which is still based on 2008 rental values, will have some time to wait before there is any meaningful change. It's clear from the introduction to the paper that there will be no reform until after the 2017 revaluation, which conveniently postpones this exercise until after the general election."

"The package of recent reforms is undoubtedly helpful although, along with this paper, is only really tinkering at the edges. The figures speak for themselves - with £22 billion in rates revenues collected in 2012/13 and further cuts to public spending on the cards, the likelihood of material structural changes to the system remains a distant one for so long as the imperative for the government remains to maintain the sustainable tax revenues generated by this discredited system," he said.

According to the discussion paper, the government is seeking views on five elements of the existing system: how property is valued; how often property is valued; how business rates bills are set; how business rates are collected; and how information about ratepayers and business rates is used. It does not propose more fundamental reform to a tax which the paper states provides "sustainable tax revenues to fund public services and [raises] revenue in a way that is less distortionary than many other taxes".

"Publication of this paper is a clear admission from the government that the business rates system is in dire need of reform," said property expert Stuart McCann of Pinsent Masons. "The review will consider the ways in which the business rates system is administered by the Valuation Office Agency and local authorities, focussing on how property is valued and how often, as well as how rates bills are set and collected."

"There is little doubt that the government will receive a healthy number of responses, but it is widely anticipated that the review will ultimately not deliver enough, with the government likely to seek to calibrate, rather than fundamentally reform, what they consider to be a stable and sustainable tax," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories and currently form the third biggest outgoing for small businesses after rent and staff costs. Retailers and lobbyists have repeatedly called on the government to re-examine the effect of business rates on their businesses, with some saying the regime disadvantages traditional shop owners compared to their online retail counterparts.

Rates are based on the rateable value of the business premises, which is set by the Valuation Office Agency. This valuation is used by local authorities to calculate how much the occupier of that property should pay. Revaluations usually take place every five years; however, the government postponed the revaluation due to take place in 2015 until 2017 in a move that it said would provide "tax stability" to shops and businesses. Industry groups reacted angrily to the decision, as it has resulted in them continuing to pay rates based on pre-recession property values.

Proposals trailed by the discussion paper include replacing current individual valuations with 'bands', similar to the existing system of council tax; or taxing properties in certain 'zones' according to the same rateable value per square metre. It is also seeking views on whether properties should be revalued more frequently and, if so, what impact if any there would be on appeals made by ratepayers who are challenging decisions made about their property's rateable value.

"The government's long-term economic plan is to support business and enterprise and we have taken a number of steps to help them with their business rates," said David Gauke, Exchequer Secretary to the Treasury, as the review was published. "This includes over £1 billion of business rates support. Through this review, we want to look at options for longer-term reforms that will make the system fairer, more efficient and more responsive to economic circumstances, while making sure business rates remain a stable and sustainable tax which funds essential local services."

The call for evidence closes on 6 June 2014.

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