In the on-going discussion over how to reinvigorate deteriorating High Streets, business rates have come to the fore. In this article, we look both at the current situation with regards Business Rates and which changes interest groups currently pressuring the Government would like to see.
The Current Situation
Business rates are essentially taxes charged on most non-domestic properties, reflecting their rateable valuable (potential rental income) and a multiplier nationally determined and reviewed. Typically, rates are reviewed every five years to ensure they take into account changing high street rental values, although the Government, somewhat controversially, delayed in 2012 the next review until 2017 (up from 2015).
High rates have been highlighted by many as holding back high street redevelopment, though the Government claim that much has already been done. A spokesperson from the Department for Communities and Local Government summarised the Government’s position:
“Small firms and shops are at the heart of our High Streets and local communities, and we are supporting them to help the economy grow. Figures show that the level of small business rate relief has trebled since the general election, because of government initiatives.
“Rate relief in England has risen from £333m in 2009-10, to £507m in 2010-11, to £784m in 2011-12 and now to £900m in 2012-13.
“Postponing revaluation 2015 in England will avoid sharp changes and unexpected hikes in business rate bills for over 800,000 premises, including retail and small shops.
“As business rates are linked to inflation, postponement means there will be no real terms increase in rates over the five years. This provides certainty and tax stability for businesses looking to grow and invest, which helps improve the economy.”
The High Street Problem.
Reversing the current trend of vacant shop windows is one of the key issues faced in UK property. A recent report from the Local Data Company highlighted the issue: showing that the average vacancy rate in the top 650 British town and city centres was 14.1%, down just slightly from the previous reading of 14.2% taken in February.
Wales had the highest national vacancy rate, at an average of 17.5%, Scotland hit 14.9% and England 14.0%.
Edward Cooke, Director of Policy at the British Council of Shopping Centres summarised the business rates problem facing investors and landlords:
“The Treasury continues to receive the same amount of money, adjusted for inflation, every year, irrespective of market conditions.
“Therefore, even where there is an empty unit and the landlord is prepared to give a lower rent, the cost of occupancy – due to the level of business rates – is preventing these units from being occupied.
“The trend definitely is that landlords are reducing rent, reducing the length of leases, contributing to the cost of fitting out a store, all in order to incentivise retailers to take space – but it’s not uncommon for retailers [still] not to be able to afford the business rates.
“[While] the market determines the costs of occupancy, those properties are being taxed at the same rate despite sales not being what they once were so there’s a further polarisation between what the government is taking in terms of business rates and what retailers can afford.”
Various stakeholders have expressed differing views on a potential solution. Liz Pearce of the British Property Foundation commented:
“The government undoubtedly needs to commit to a root-and-branch review of business rates and a system that ratchets up with inflation each year regardless of the wider economic conditions, and the distortion this creates.
“For example, why should the tax system exaggerate the existing cost base and flexibility advantages of an internet retailer over a High Street retailer?”
David Boyle, Fellow of the New Economics Foundation added another idea:
“Cut business rates for businesses making major contributions to local economic diversity in the area”
So what truly is the business rates solution and what, if anything, can fiddling with the rates system do to reverse the powerful trend of online and out-of-town shopping? Perhaps, as Richard Blyth of the Royal Town Planning Institute suggests, the answer lies beyond business rates; with a re-imagining of the high street as a concept:
“High Streets have always been in a state of flux. Part of their success historically has been that they are extremely sensitive to changing demand. The difference now is that the rate of change is more rapid than it has previously been. The important thing to grasp is that change, not decline, is inevitable.
“Starting with the basics, people need to be able to get to and from the High Streets easily and this means adequate and affordable parking, and good connections to public transport.
“The offer needs to be an attractive, diverse and distinct one in order to compete with the convenience and cost effectiveness of internet shopping.
“Planners believe that we need to be imaginative. High Streets are in the heart of communities and should make them ideal locations for health and education services.
“… There are a variety of tried-and-tested initiatives that have been used and which could play an important role… including business improvement districts, “meanwhile use” such as pop-up shops, and town centre managers.
“Every area is different, and the response needs to be tailored to local need.”
We would like to hear your views on this issue. If you have some thoughts, drop them in the comments box below.
If you think your business rates may be too high, many Chartered Surveyors are able to assist in formulating and executing a successful appeal. Don’t hesitate to contact one via the link below:
SRJ / LCB 12/09/2013