Why we can’t wait for business rates reform

On current predictions, we estimate business rates bills are likely to rise by a total of £1.56bn next April, giving unsustainable rises to all sectors of the economy.

Rates bills rise in line with inflation and are based on the CPI figure for the previous September. With CPI announced at 6.7% for August, we are expecting to see CPI figures at around 6% for September 2023, with the result the total tax take from this tax will rise from around £26bn in 2023/4 to £27.56bn 2024/5 from next April.

This is unless the government steps in and freezes the business rates multiplier, as he did for this year, keeping it at 51.2p for every £1 of a commercial property’s rateable value, and 49.9p for small businesses. Or undertakes some fundamental reform of the current system.

Already 44 major British retailers have written to the chancellor ahead of his Autumn Statement, urging him to freeze the multiplier otherwise they estimate an extra £400m will be added to the retailers’ cost base next year, particularly as Covid related reliefs come to an end. With an already decimated high street in some areas, this sector cannot cope easily with such a rise.

However, retail is not the only sector that will be penalised by this unsustainable tax. The logistics/manufacturing sector now pays 26% of the total business rates tax bill and has seen steep rises in its rates bills, as a result of the 2023 revaluation. With inflation at 6%, we estimate the sector will see its rates bills rise by around £406m in April. As an example, combined with the revaluation increases, we estimate the Amazon London distribution park in Tilbury, will see its rates bill rise from around £4.7m in 2023 to £6.7m from April 2024 – a massive £2m increase – unless something is announced.

Similarly, the offices sector is expected to face an extra £354m in its total rates bill. Barclays Bank in 1 Churchill Place in Canary Wharf, for example, will see its rates bills rise from around £9.1m this year to £9.6m in April 2024 – a half a million pounds rise. At a time when companies are considering their office space requirement, this is certainly not going to help the “case” for investing in the office.

Such rises are clearly unsustainable at a time when all sectors are suffering from increased costs, whether from increased wage bills, materials or energy costs. They may not be able to  cope with a hike in rates bills too. Higher occupation costs will only dampen expansion and growth plans and for many businesses might be the last straw.

This is why the government must do something. Freezing the multiplier for 2024/5 is the first step, but only really papers over the issues. Ultimately, we need proper business rates reform.

We at Colliers have long been ardent campaigners for business reform and critical of successive governments that have totally failed to grab the nettle and just tinkered around the system or put it in the “too difficult box”. Current business rates consultations, such as the latest concentrating on avoidance or evasion of Empty Property Relief, rather miss the fundamental point. Business rates currently provide £32bn gross (£26bn net) for local authority funding but rates bills are just too high and increasingly unaffordable for many.

We have drawn up a manifesto for reform, the main components of which are:

• The government should rebase the multiplier to a level that businesses can afford – to say 34p in the £. A lower fairer UBR would reduce the barriers to entry, help expansion and innovation for businesses and encourage growth. It would broaden the tax base, disincentivise tax avoidance and help reduce any gaps in revenue for the exchequer caused by a lower UBR.
• Reform the sticking plaster reliefs system. Re-basing the multiplier to something affordable will mean that the whole question of the myriad of reliefs can become simplified and resolved, as not so many businesses will need to claim them. Everyone that benefits from public utilities and local services needs to pay something- but at a fair rate, maybe starting at 10 or 15% for the smaller businesses. Colliers believes reliefs should be reviewed at least every three years.
• Introduce annual revaluations. The government has moved from five-yearly revaluations to three-yearly revaluations, which is a step in the right direction, but in Colliers’ view is not far enough. By implementing annual revaluations, business rates bills will accurately reflect the dynamic movements of the market and allow occupiers to benefit immediately from adjustments to rateable values.
• Reform the appeal system and demand transparency from the VOA. The current system makes it too hard for businesses to either access the fairness of their assessments or to appeal them. Recent tinkering with (CCA) has only added to the confusion and the request for the annual provision of information from the ratepayer has also added a significant administrative burden.

Colliers believes the current system needs to transparent, easy to access for all and allow appeals to be resolved in 12 months, so that businesses can get on with what they do best- running their businesses.

In its 2019 manifesto, the Conservative Party promised, “To cut the burden of tax on business by reducing business rates. This will be done via a fundamental review of the system.“

With rises of over £1.5bn looming next year, it clearly has not fulfilled this promise. We urge the chancellor to finally act – and to do so as soon as possible.

John Webber is head of business rates at Colliers