Leading property trading bodies call for significant changes in the government’s business rates review
In response to the government’s review of business rates, two of the UK’s leading property industry trade bodies have warned that failing to make significant changes to the system will mean businesses could face 60% tax rates within seven years.
The review of business rates will continue until April 2016, but in the meantime both the British Property Federation (BPF) and British Council of Shopping Centres (BCSC) have pinpointed some exact changes that they would like to see made to the system.
As an MSCI report points out, rental values have grown just 5% since 2000, having peaked in 2007. However, the present business rates system hasn’t taken this into account. Rather than business rates bills falling and rising with rental values in a way that would enable them to be responsive to the wider economy, tax rates have shown a tendency to fall as property values rise, and rise as property values fall. The BPF and BCSC have made clear how unbalanced the tax system is with regard to these figures.
Speaking of an unbalanced system, research has been cited by various rating surveyors, suggesting that the business rates multiplier – currently set at 49.3% – would represent a tax rate of over 50% after 2017, which is likely to then increase to 60% by 2022.
Of the 34 OECD (Organisation for Economic Development) governments, the UK has one of the highest property tax rates.
The effects of further property tax increases
The BPF and BCSC are concerned that a property tax increase will have a negative impact on the UK’s overall competitiveness, suggesting that added pressure on rents through high taxes, would discourage investment in real estate.
The knock-on effect could stunt job creation as small and growing companies struggle to find the space they require in order to thrive.
Chief Executive of the British Property Federation, Melanie Leach, touched upon how property and business has changed in the UK since the business rates system was introduced in the early nineties:
“From the advent of the internet to the financial crash, the way we use property has seen enormous changes since business rates were introduced in the early nineties. In order to ensure that the business rates system is fair, [the] government must ensure that the rates system takes account of these changes.”
She finished: “Failure to do so could mean the UK missing out on investment, with longer term risks for the competitiveness of our economy.”
Business rates relief
Instead of being determined by RPI, the two trading bodies claim in their response that there is a need for business rates to be set by a fixed multiplier so that the wider economic conditions under which businesses operate are more closely aligned.
In order to stay up-to-date with ratepayers’ rental values, and to reintroduce a relief for empty property rates, the response also calls for more frequent revaluations of business rates.
Under the current system, when a property becomes vacant it is given a brief period of relief from business rates – 3 months for most properties. After this time the full business rates are payable by the owner although business rate mitigation of as much as 90% can be achieved by employing a vacant property security firm.
BCSC Director of Policy and Public Affairs, Edward Cooke has called the current system “unsustainable” and calls upon the government to finally use this time to create a system that can better reflect the fast paced nature of the market:
“Now [the] government has a chance to show business that it believes in great British retailers and vibrant places as a key part of a multi channel retail future. The market in which these businesses operate is changing faster than ever and a tax system that reflects these fluctuations is critical.”