Mark Prisk – Fifty-year-old rating system is showing its age

Original article can be found on the Property Week website here

Being a fixed overhead, business rates don’t reflect the changing fortunes of a company. So when there’s a downturn, the rates bill bites even harder.

However, for government — central and local — this makes business rates attractive. While other tax revenues rise and fall with the economy, business rates provide the public sector with a steady flow of revenue — currently £26bn. So all governments are very wary of tinkering with the system.

That’s not to say that the coalition hasn’t tried to help. Half a million SMEs (small and medium-sized enterrprises) benefit from the small business rate relief scheme, which will now last to the end of this parliament. Discounts of up to £1,000 will also be on offer this year to help those retailers with rateable values of up to £50,000.

Perhaps the greatest benefit is the cap on the rise in bills to 2% in the coming year. Together these measures equate to £1bn in savings for business this year.

Age-old problem

Yet the truth is that the system of national non-domestic rates is showing its age. Largely dating from the General Rates Act 1967, the system’s origins reach back to the poor laws of the 16th century. Substantially updated in 1988 and incrementally ever since, it’s a property charge that has become increasingly opaque, distorting and out of kilter with the modern economy.

To be fair, the chancellor has acknowledged the problem. In December, he announced that the whole valuation and appeals process would be consulted on and simplified, so the rates become clearer to those who pay.

This is overdue. I have come across many cases where businesses simply don’t understand how their bills have been calculated. In one case, the Valuation Office Agency decided to switch valuation methodologies. The result? The woman who ran the small business faced a substantial increase in her bills and closed down.

That’s why the first change should be for the Valuation Office Agency to have its remit rewritten so that, like 50 other government agencies, it should have a legal duty to take account of economic growth in its work.

Yet the problem isn’t just about process. Reform also needs to focus on better reflecting market conditions, and, ideally, to be an incentive for the best use of land and buildings. Urban regeneration is not helped by the current system.

Take one example: the retail sector. With online sales nearing 20% of retail spending, there is huge consolidation under way in the total demand for retail floor space.

Large centres are strengthening their relative position, but many other smaller or secondary retail locations are in serious long-term decline. And the uncompetitiveness of the high street is only made worse when retailers’ rates bills exceed their rent. That’s bad for business, bad for town centres and will lead to a serious erosion of the tax base.

So it’s in everyone’s interests to have a fundamental rethink about how premises in this sector are valued. After all, what is the actual difference in activity between a warehouse operated by Amazon, and a “click and collect” store run by Argos?

We need to rethink both the use classification and the valuation of all retail and associated property, at the very least to make our high streets more competitive.

The date of the next revaluation in 2017 marks 50 years for the modern rates system. While many readers have complained about the delay of that revaluation from 2015, it actually affords an opportunity to achieve genuine reform.

At present the government is committed to discuss with business “options for longer-term administrative reform” of the system post-2017. I think we can do better than that. It’s time the business and property worlds showed Whitehall why wider reform is in the interests of both business and government.

It will need to see how doing nothing will prove costly and how the reforms wouldn’t upset the relative stability of revenue, but I believe there is an opportunity here to start a dialogue which, if managed properly, could make the system fit for the next 50 years.


Mark Prisk is MP for Hertford and Stortford, and a former government minister with responsibility for property, construction, housing and economic development

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