No tax should be so high that it directly impacts companies’ decisions as to whether they open or close their bricks-and-mortar estate.
It is all down to the multiplier, which at just over £0.51, is too high. An effective 51% tax on the rental value of commercial premises is unaffordable for many businesses. As with income tax, once a tax rate exceeds 50%, the amount collected reduces significantly.
This multiplier has crept high because of ‘slippage’ between revaluations and annual RPI increases over the past 30 years. The government should now reduce the multiplier to 1990 levels, when the net amount collected in business rates represented 31% of the total RV in the rating list. A 30% tax would be more manageable for businesses to cope with. The government should also rebase the multiplier at every revaluation to avoid the ‘creep’ upwards.
A lower multiplier also reduces the need for the complex system of reliefs, often introduced to counter high rates bills. Granting reliefs has often been politically expedient, rising almost out of control. In some parts of the country, there are business rates deserts where no rates are paid at all. The system needs to be overhauled. Reliefs should be reviewed every revaluation cycle, which should be at least every three years.
Given the current economic climate, empty property rates relief should be extended, not curtailed. The reason commercial property often lies empty for long periods is due to a lack of market demand and socioeconomic factors – not, as some have suggested, landlords’ unwillingness to let properties. The six-month empty rates holiday should be extended from the warehouse and industrial sectors to the retail and office sectors, too.
Business rates form a vital part of local-authority funding. But the system is out of kilter with the current business climate. A 50%-plus tax, likely to rise further, is unsustainable and will lead to further business closures and job losses.
We welcome the call for reform, but the government must offer solutions quickly. A drastic cut in the multiplier and subsequent business-rates bills needs to be introduced now. Leaving this until next year or even the November Budget could be too late.
John Webber is director and head of ratings at Colliers International