Business Rates: Can the System Better Incentivise Investment?

We’re seeing a lot in the papers about business rates, as we build up to the new financial year starting in April when businesses in England and Wales will start paying rates based on the latest revaluation. I want to start by reminding you of a very positive announcement at last year’s budget, one that has been neglected a little in some recent press coverage. All single site businesses with a rateable value of under £12,000 will now pay no business rates. That’s a really big benefit to lots of convenience stores, and we shouldn’t forget that the government has done exactly what many retailers have been asking them to do by taking the smallest businesses out of paying rates altogether.

The problem is that two years ago, the government undertook to complete a fundamental review of business rates. The exemption of the smallest businesses from paying rates was the main outcome of this review, so lots of businesses, and organisations like ACS, were left frustrated by the lack of a clear conclusion to the review, and the lack of a resolution to many of the important issues we all raised. The most important principle that’s been left unaddressed is the way the current system penalises investment, so if you improve your store, your premises is deemed to have increased in value, and your rateable value and rates bill will go up accordingly.

Surely one of the ways a tax system should work is to encourage investment, and while we’re very proud that the convenience sector has invested over £800m in the past year, many of those businesses who are backing themselves and fuelling the economy in the communities where they trade will now find themselves paying more tax as a result. That can’t be the right way to incentivise growth. The other big missed opportunity from the review of business rates was the chance to look at the various sector-specific schemes that are applied where the rental values of premises in some sectors do not match the economic value of those businesses. This means businesses like pubs, petrol forecourts and ATMs are rated differently to a typical convenience store on a high street or parade. Are these schemes still relevant, still accurate, and still fair? Petrol retailers do not believe the system works well, and most of the biggest increases we are seeing among convenience stores are for those trading on forecourts. These concerns are mirrored by those from pub operators, some of whom fear big rates increases in April.

The government should have looked at these schemes more carefully, and considered which of them are still relevant or need to be changed. They should also have looked at premises like internet trading facilities and considered whether they are paying too little under the current system. Maybe these businesses should be subject to a separate scheme to determine the business rates they pay. At the very least, the sector schemes used in the rates system should have been unpacked and re-considered. The lingering problems with the business rates system are made worse by the government’s proposals to reduce the number of appeals against business rate valuations. I have some sympathy with the government’s desire to cut down on the appeals that clog up the system, are time consuming, and have created an industry of speculative appeals initiated by (a minority of) agents seeking fees. But we also can’t expect businesses to take excessive rates bills on the chin. It’s not acceptable to deny businesses the right to challenge what may be unfair rating assessments. With high street businesses under pressure from so many quarters – wage costs, economic uncertainty, inflationary pressures, and competition from on line – the government should go back and look at if the business rates system is incentivising investments, delivering fairness, and if sector specific rating schemes are fit for purpose.

This entry was posted by Leah on Tue, 03/01/2017 - 12:24