By Stuart Hicks, FRICS Dip Rating IRRV (Hons)
Head of Rating Dunlop Heywood
The Government has announced a consultation on the transitional arrangements for the Business Rates Revaluation 2023.
This deals with the important effects of transitional relief in England and will be of huge importance to any businesses benefiting from a reduced Rateable Value (RV) following the implementation of the 2023 rating lists.
The Government is asking how it should “strike the balance” in the 2023 transitional arrangements between supporting ratepayers facing increases to their bills and allowing the effect of the revaluation to flow through into bills.
For non-domestic rates, the distribution of the tax is set through revaluations, which periodically reassess and update individual rateable values to reflect changes in the market. This helps to ensure that, where shifts in economic activity have driven changes in underlying market values, these changes are fairly reflected in rates liabilities.
The move to a three yearly revaluation cycle to ensure rateable values more closely reflect the market has broadly been welcomed by ratepayers. Where rates liabilities are out of step with the market the tax is brought into disrepute causing very vocal calls to change the basis of taxation.
Parliament has passed law meaning that the effects of the Covid-19 pandemic cannot be reflected in the current 2017 rating lists, but it said that those effects would be captured in the values set following the 2023 revaluation because the base date will be the AVD on 1 April 2021 during the pandemic.
But if non-domestic rates liabilities are kept artificially high, irrespective of a fall in rateable value, this will again cause very noisy calls to further reform the system. In the current economic environment, it would be very unfair if those sectors badly affected by the Covid-19 pandemic (such as aviation or shopping centre retail) subsidise the rates liabilities of those who have done well during the pandemic (such as the logistics sector). As has happened time and time again so called ‘winners’ under a revaluation subsidise the rates’ liabilities of those who are actually doing well financially as evidenced by the higher rental values they are prepared to pay. A classic example being multi-storey redundant factories in the North subsidising high street retail in the South at the 1990 revaluation. The redundant factory occupiers were only ‘winners’ in a rather restricted sense.
The Government is also questioning what format of transitional relief should be provided for the 2023 revaluation.
In any form, transitional rates relief distorts the rating system. At best it should be abandoned with the introduction of more frequent revaluations with any changes in the RV and resulting rates liability being less dramatic.
At worst the transitional relief scheme should be aggressive and ensure that true liability is reached during the life of the particular rating list series. Otherwise, the revaluation process is meaningless. Simple is good – 50% change first year, 50% next year – all done.
The consultation goes on to query if the Government should continue to provide assurances through transitional relief that bills will not rise by more than a set percentage due to the revaluation.
The reason for both upward and downward transitional adjustments is to ensure that revaluations are fiscally neutral to the Exchequer. One funds the other.
When the 2017 rating lists were brought in, some businesses and sectors saw a significant decrease in rateable values. However, for many businesses, due to downwards transitional relief, the purpose of the revaluation – to ensure the fair distribution of the tax base – was not realised. That unfairness needs to be tackled. The transitional relief scheme should be aggressive and ensure that true liability is reached during the life of the rating list series in question. Otherwise, the revaluation process is meaningless.
Looking at the option of providing different caps for different sizes of properties, in the past the government has differentiated properties by RV and applied different schemes of transition dependant on those rateable values. This was an attempt to have more generous relief schemes applied to small business.
If transitional relief is to remain, a simple scheme should apply to all that is aggressive and ensures true liability is reached before the rating list ends.
If the Government still wish to fund transitional relief but allow it to remain revenue neutral over its lifetime they have to address the issues that most small business now pay little or no rates due to Small Business Rates Relief. This is despite the fact that such business still receives local authority services and are in most cases fully able to pay. I believe all occupiers should pay something, and the various relief schemes should be reviewed and limited including:
- charitable rate relief;
- enterprise zones;
- exempted building and empty buildings;
- hardship relief;
- retail discount;
- rural relief;
- small business rate relief
If those schemes are reviewed it would make the rating system fairer for all.
Transitional rates relief is unique to non-domestic rates in England. Businesses located elsewhere in the UK see their bills change immediately, up or down, following a revaluation, and many ratepayers have asked for reforms to achieve the same effect in England.
I believe that reform would give clarity to ratepayers and often where there is clarity there is acceptance.
The full consultation can be read here:
Responses are needed by July 11. 2022.