With the new rating list coming into effect from the start of this month, rates are back in the news. Rates make the headlines every few years, with the height of fame being the removal of empty rate relief – which was widely, and wrongly, predicted to lead to large scale demolition of perfectly sound buildings, alongside catastrophic consequences for the economy.
This time it is mainly about the huge increases in rates, principally affecting shops and offices in London. Ditch this outdated complex and harmful business rates system, screamed the Evening Standard on 13 October.
Whether we like it or not, the truth is business rates are here to stay, largely in the present form. London will survive the hike in rates, as it has in the past, and the real impact, if there is one, will fall not on the tenants who actually pay the rates, but on owners. This is what is known as the ‘incidence’ of a tax. If tenants cannot afford the rates, the market will adjust and rents will fall.
There are three good reasons why rates are popular with Government. They raise almost £30bn annually, the revenue increases with inflation every year and it is a very difficult tax to avoid. For the Chancellor, it is a winning ticket.
The fly in the ointment, as far as Whitehall is concerned, is the huge number of appeals submitted every year – administered by the Valuation Office’s 3500 staff – which results in substantial refunds being paid from the public purse.
In August 2016 the Government reaffirmed its commitment to delivering an improved appeal system, entitled ‘Check, Challenge, Appeal’. These reforms are apparently intended to make the system ‘easier to navigate’, but in reality the changes are designed solely to reduce the number of appeals.
For businesses considering an appeal, the following changes will be a powerful deterrent:
The whole process will be slower, more onerous and more expensive than before with quite possibly nothing to show for it at the end.
Business lobby groups – including British Property Federation, British Retail Consortium, Confederation of British Industry, Chambers of Commerce (among others) – are outraged at these reforms. However, it might be argued that businesses, and the agents representing them, are victims of their own success and have only themselves to blame.
It seems likely the Government’s new procedures are based on its belief that in the past far too many rating appeals have been successful, despite having little or no merit. It has a point. For decades, the young and inexperienced Valuation Office staff has been no match for the resources of rating agents in private practice. It has not been a fair fight. Unwarranted reductions on appeal have been given all too often. The playing field is being levelled and some would say it is overdue.
John Powell, Squarebrook, 14 October 2016
This information is for professional advisers only. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and are subject to change at any time without notice. The contents of this article are not intended as investment advice.
CLI00714 Expiry on 14 October 2017