What comes next cannot be business as normal in April writes Robert Hayton.
The Treasury, attempting to negate the economic impact of the coronavirus, wrote off business rates bills this financial year to the tune of £10.13 billion, fully exempting 358,264 occupied retail, leisure and hospitality properties in England.
A further 699,367 business properties across all sectors of the economy already paid no rates through existing small business rates relief rules. Whilst exempting half of all properties isn’t sustainable, meaningful support must remain in place if we want to protect the long term health and viability of our high streets and communities.
Despite the current support, retailers have already closed nearly 13,900 stores, shedding more than 125,000 jobs across the UK so far this year. Many others are barely clinging on to solvency and, for those, an abrupt halt to the current rates holiday could spell the end, full stop.
For many, but not for all. Some parts of the retail sector have managed to thrive and the rates holiday has been the icing on an already very sweet cake. Tesco, for example, are now creating 16,000 permanent roles after a successful online boom in sales during the lockdown. Did, with hindsight, the huge superstores and hypermarkets need the £2.68bn, more than a quarter of all the relief handed out, they received?
Looking back to March the Chancellor, Rishi Sunak, didn’t have time to create a more nuanced support package. He does now, and whilst what comes next cannot be a return to pre pandemic levels of property taxes for retailers, it must strike a balance with public finance affordability. Targeting support to where it is most needed is the only realistic way to achieve this.
Reduced support for thriving businesses is obviously the first part of this. Then it gets trickier. Unpopular as this might be, we need to accept that some retail was already at death’s door. Pouring money into unsustainable businesses just isn’t sensible fiscal policy. A fundamental structural change to the retail landscape was already well underway and viable, vibrant retail that is now struggling as a direct result of the coronavirus shouldn’t be denied the chance of survival simply because support wasn’t appropriately targeted nor sufficient.
How can this be achieved? Well, the business rates system already provides a significant part of the solution. In the medium term, the Government’s decision to postpone the next reset of rateable values until 2023 ensures that the revaluation will be based on post Covid-19 emerging rents.
But, for the here and now, material change in circumstances appeals allow ratepayers to have their valuation assessments reduced to reflect the current impact of the pandemic. For many retail, hospitality and leisure premises, and indeed many other property types, the current true value of their property may well be close to zero. As conditions improve values will then be able to track improvements ensuring fairness, a form of phasing if you like. This could be supplemented by discerning targeted additional support.
The only downside to this solution is that historically valuation challenges have been slow to resolve. The Chancellor must ensure that the Valuation Office Agency, who maintain the rating lists, is empowered to correct Challenges to assessments at speed and with pragmatism.
Sustained and prolonged reductions in rateable values through the business rates system reflecting the pandemic would not only provide meaningful help but instill much needed confidence in the system.
But we can, and indeed, need to go further in the longer term. If we are really serious about ‘levelling up’ the economy to help struggling towns and communities, the gradual phasing in of tax reductions must end for those suffering significant declining property values whilst respite to the financial burden of rates can be alleviated through the ending of the ridiculous policy of annually increasing upwards the tax rate. Growth should be the driver for local authority revenues.
Whilst incentivising, rather than penalising through the tax system, those businesses investing in sustainability to lower energy consumption and emissions from their buildings would demonstrate that the Government is also serious about climate change and a green recovery.