Business Rates: Manifesto Proposals for Reform
The extension of the last five-year valuation period to seven years, and following a severe recession, has produced an exceptional shift in rateable values. It is understandable that all parties have reacted in their manifestos to the public outcry, but we should beware of tinkering when the damage is already done.
Any simple and cost-effective system is likely to produce instances of hardship and unfairness. Property values are a decent barometer for the way the local economy and its subsectors are performing. They are a sound basis for local business taxation.
There is nothing fundamentally wrong with a five year revaluation cycle, provided it is always five years. A five year cycle allows a business to plan properly over the short term. It fits in nicely with a normal rent review period or lease length, it follows the ordinarily gradual evolution of values and allows for periodic redistribution of liability. It means savings won on appeal are meaningful, with the cost and effort of challenge balanced by a lasting result.
We welcome the proposal to exempt new investment in plant and machinery from valuations. Depending on the detail, this could encourage investment in new products and more efficient processes, both of which will benefit our productivity and our economic growth. It could also encourage the adoption by businesses of renewable energy technology, such as solar panels, which are currently penalised under the rates system.
Self assessment has no role to play in making the system fairer. How could a business have any hope of getting to the right answer? Unlike the Valuation Office Agency a typical business has no access to the rental information on comparable buildings that is typically needed to establish the market value of a property.
Small business relief is welcome, but, in focusing on rateable value, the current scheme looks at the space occupied by the business and not at the turnover of the business. It will exempt a highly profitable and stable business that happens to occupy a small amount of commercial space, but it will not support a low margin business, perhaps one that employs many people, but is forced to occupy a large property. It has as much to do with making rates cheaper to administer as it has to do with helping entrepreneurs.
An online sales tax might be used to level the playing field, but it does not belong within a system based largely on rental values. It should not be seen as a generator of additional income. Revenue should be ring-fenced and used to provide relief for traditional bricks and mortar retailers.