5 Business Rates |
The debate about Business Rates is essentially
the debate about the future shape of our cities, our town centres,
our high streets and our communities.
[British Retail Consortium]
56. As we said at the start of this Report, the issue
of Business Rates was highlighted as the main threat to the survival
of existing retail businesses in the High Street, and the biggest
obstacle to entrepreneurial, new retail businesses starting up.
Boots UK wrote that "Business Rates represent the highest
level of corporate tax in the UK and one of the highest forms
of local property tax in the EU".
Tim Fallowfield, Corporate Services Director at Sainsbury's, said
that "the UK's proportion of property-related taxes as a
proportion of GDP is significantly higher than that in any other
country in Europe".
57. Business Rates, also known as non-domestic rates,
are a tax on non-domestic property, and, according to Brandon
Lewis, Minister for DCLG, the Retail Sector accounts for approximately
25% of this tax.
Business Rates are calculated by multiplying the rateable value
of the premises (currently as at 1 April 2008) by the multiplier
(pence per pound of rateable value). The rateable value of the
premises is set by the Valuation Office Agency, an executive agency
of HM Revenue and Customs (HMRC),
and the multiplier is set by the Government.
At the beginning of each financial year, the Government may raise
the multiplier by a maximum equivalent to the Retail Price Index
(RPI) from the previous September. Local authorities have the
responsibility of billing and collecting Business Rates from businesses
in their area. They are also responsible for implementing different
rate relief measures, some of which are mandatory and others discretionary.
The occupier of the property is liable for Business Rates, and
when the property is unoccupied, the owner is liable.
58. The Local Government Finance Act 2012 introduced
the Business Rates Retention Scheme in England, which made alterations
to the distribution of Business Rates between local authorities
and Central Government. While the job of billing and collecting
the tax from businesses remains with local authorities, 50% of
rate revenue is now retained by local authorities, while 50% goes
to Central Government, where previously Central Government kept
all Business Rates revenue. Within the Government, there are three
Departments that are concerned with Business Rates: the Treasury;
the Department of Communities and Local Government; and the Department
for Business, Innovation and Skills. The BIS Retail Strategy
paper states that "the Government position on Business
Rates is that it is committed to review the use of the Retail
Price Index for Business Rates once its fiscal consolidation plans
have been implemented".
59. The Association of Town and City Management described
the current Business Rates system:
The original rationale behind a system that will
only ever increase revenue to the Government in line with inflation
(measured by RPI) was that land and property were price inelastic
as there were few suitable alternatives to undertake trade. Trading
without property was virtually impossible, meaning taxation had
little impact on investment decisions. However, years of increasing
the land available for main town centre uses, coupled with the
growth of the internet means commercial property, while critical
to the UK economy, is not the attraction it once was.
60. Our written and oral evidence predominantly concentrated
on the burden of Business Rates on the retail sector, especially
the burden of the tax on 'bricks and mortar' shops on the High
Street. Morrisons wrote about this excessive tax burden carried
by the retail sector:
Among the FTSE 100, only the banking sector and
oil and gas sector contribute more in tax than the retail sector.
We are happy to pay our fair share of tax to help fund the services
on which we all depend, and to do so in a transparent way. But
as one of the few drivers of growth in today's economy, the Government
should be looking to deliver greater certainty for the retail
sector in the tax system as a way to promote further growth and
61. Many small businesses are paying more in Business
Rates than they do in rents.
F Hindsa family-owned and run retail jeweller, trading
for over 150 years with 110 shops across England and Waleswrote
of the practical repercussions of the high level of Business Rates
on their business:
It is frustrating that we have had to turn down
several shops because the rates bill is unrealistically high,
often in excess of the rent we would have been required to pay.
This has meant that we have not employed several staff in each
of these locations nor made an investment of the order of £400,000-£500,000
each time. So far as we are aware, in the vast majority of cases,
these shops are still sitting empty. What makes it worse is that
these are generally the medium sized towns which are most at risk
from retail collapse due to a tipping point being reached in the
number of empty shops. Since 2007, every shop we have opened (eight)
has been in a shopping centre and every shop we have closed (five)
has been on a High Street. This has not been a strategy or even
a desire but the inevitable effect of increasing costs without
increasing the revenues in these locations and a worsening surrounding
62. Rodney Atkinson, an author and High Street landlord
in the North East of England, also wrote about the incongruity
of rents stagnating or falling, while Business Rates keep increasing:
While rents stagnated Business Rates kept rising.
Now that shop rents are actually falling (by up to 30%) Business
Rates (which are supposed to be related to rentable value) are
still going up. This is a massive and inexcusable burden on landlords,
tenants and consumers.
63. The crucial point about the current Business
Rate tax system is that it is fiscally neutral, which means that
the tax is not set or changed by the Government in order to promote
or discourage certain practices. Brandon Lewis, Minister of State
at the Department of Communities and Local Government, told us
that "the business rate levels overall stay the same. If
one sector or one geographic area drops, everything else is covering
the cost of that, so the multiplier has that impact".
When asked whether the current system should change because of
its unfairness to individual premises, Brandon Lewis replied:
The problem with that is you are then also altering
the overall tax take, which means you are dealing with the problem
that this Government is having to deal with: the deficit that
it inherited and the debt we inherited. There is a fiscal consideration
we have to take into account as well.
64. Bill Grimsey, retailer and author of The
Grimsey Review, also highlighted the inflexibility of the
Business Rates system:
If we look at the issue of business rates and
the reliability that Government has on this tax, it is quite frightening.
It is the only tax that does not flex with economic conditions
and, therefore, it is relentlessly going upwards and onwards.
It is £26 billion this year, as a total number. It is going
to break through the £30 billion mark in the next couple
of years under the current methodology, but it is not likely to
get changed very quickly.
Helen Dickinson, Director General of the British
Retail Consortium (BRC), highlighted the benefits of reviewing
the way in which Business Rates is calculated, which has the potential
for generating more revenue for the Government:
If there are about 300,000 stores across the
whole of the country and the vacancy rate is 12%, if that was
moved by 1% then that is about 3,000 stores. If between five and
10 people are employed in each store, that [equates to] 15,000
to 30,000 jobs. Then you have a knock-on effect from a Treasury
point of view of corporation tax and national insurance from that
particular store. That is before you get into the beneficial impact
on the local economy. My point there is that perhaps we need to
look at it in a different way.
65. Both Business Rates and the high costs of
rents are issues that affect the Retail Sector. The cost of Business
Rates is increasing disproportionately to the cost of rents. The
result is causing critical financial difficulties for many retail
businesses, especially SMEs. This means that not only are those
businesses suffering, and in danger of closing, but that some
High Streets are becoming littered with shops that have closed
down. This problem is exacerbated when rents do not reflect the
66. In the context of Business Rates, revaluation
means that the tax paid is based on up-to-date property values.
The Grimsey Review outlined this point:
The purpose of a rating revaluation is to achieve
fairness of tax liabilities by ensuring rateable values are based
upon up-to-date rental values and therefore to redistribute liability
in line with relative movements in property values since the previous
Revaluation normally occurs every five years. The
rental value is based on rental values two years before the revaluation
comes into effect. In other words, the 2010 revaluation came into
force on 1 April 2010, using the rental value of properties on
1 April 2008.
67. In October 2012, the Government announced a delay
of the anticipated 2015 revaluationwhich would have been
based on rental values in 2013until 2017. This delay meant
that the 2008 rental value of properties will continue to be used
to calculate Business Rates until 2017. Brandon Lewis, DCLG Minister,
told us the reasons for the delay in revaluation, and that many
more businesses would benefit from the delay than would lose out:
The reason that the Government decided to postpone
the revaluation was to avoid the volatility that would have happened
for a lot of businesses. They had that certainty of planning through
] the very volatile economic period that we have been through.
Hopefully, we are now coming out the other side of that, but it
meant that there was that stability for companies to be able to
plan and look at their plans, going forward, without the concern
about what might happen in 18 months' time. [
] A lot of
those businesses would have been within [the] 800,000 losers,
as opposed to 300,000 winners, because of the scale and size of
the change in the property value and the rentable value, particularly
for London office space. This is where there is simply no basis
for the argument around the north-south divide. Actually, it is
London that probably would have benefited, particularly London
68. In contrast to the Minister's views, much of
our evidence stated that the delay had resulted in unfair
discrepancies both across the country and within the retail sector,
specifically because the rateable value in 2008 did not reflect
the impact of the financial crisis on rateable value of properties.
Those businesses whose property value had increased since 2008
were being subsidised by those whose premises value had decreased.
This tax burden is added to the fact that, according to PWC, "profit
margins and volume of UK retail sales have stagnated since the
onset of the financial crisis, after a period of sustained growth.
Sales in March 2013 were only 2.0% higher than in March 2008".
Bill Grimsey described the effects of the delay of revaluation:
It is causing no end of distress out there, and
the beneficiaries of this move are the large supermarkets, so
we are perpetuating a consumer drift to out of town and to different
models, away from the independents, by economically favouring
the supermarkets, which will benefit to the tune of £1.3
billion over two years by the delay of this revaluation.
69. When this concern was put to the DCLG Minister,
Brandon Lewis, he said that the Government wanted to "avoid
the volatility that would have happened for a lot of businesses"
had the revaluation gone ahead.
Then both he and Michael Fallon, Minister of State at the Department
for Business, Innovation and Skills, defended the Government's
decision to postpone the revaluation, by citing the high level
estimates paper commissioned by the Government and written by
the Valuation Office Agency (VOA). Brandon Lewis told us:
One of the things that was really clear from
the work that was donethe only independent work that has
been doneon whether we did the revaluation or not, showed
that the biggest beneficiary would have been London office space.
Everybody else effectively would have been paying for that. Retail
would have gone up.
Michael Fallon agreed with this point, and described
the debates during the passage of the Growth and Infrastructure
Bill (which contained the legislative provision to postpone the
When we debated this during the passage of the
Bill, it was very clear to me, as the Minister in charge of the
Bill, from the only hard evidence we had, which was the analysis
done by the Valuation Office Agency, was that the biggest winners
of all would have been in London. They would have been Canary
Wharf offices and, indeed, Oxford Street premises. It is really
not clear to me why we should have given them the benefit and
penalised, for example, petrol stations or premises in suburban
areas or on outer ring roads of town centres right across the
70. A number of those who submitted evidence were
unconvinced that the VOA paper differentiated so markedly between
the potential winners and losers of a revaluation. According to
Paul Turner-Mitchell, a retailer and co-author of The Grimsey
Even on its own terms, the VOA data contains
no justification or support for the claim that 800,000 premises
would have seen increases. Based on what can reasonably be inferred
from the VOA's estimates and the evidence it says it has collected,
about 350,000 premises would see their bills fall, and about 377,400
premises would see their bills rise. Table 2 of the VOA high level
estimates identifies that a revaluation in 2015 would have reduced
tax liability for London offices by £440,000. Although not
explained in the accompanying report, a reduction in liability
would require total Rateable Values for London offices to have
fallen by some 28% at a 2015 revaluation, i.e. there would have
to have been a fall in rental values between April 2008 and April
2013 of 28%.
71. Furthermore, a number of contributors to our
Inquiry questioned the factual basis of the VOA paper as reliable
evidence on which to justify a delay in revaluation. Boots UK
wrote that "Independent evidence suggests that the Valuations
Office Authority (VOA) estimations for many High Streets are unduly
high. As such this is compounding economic challenges that many
areas are already facing".
The British Council of Shopping Centres was also sceptical about
the Government's reliance on the VOA estimations:
The Government has attempted to justify postponement
by claiming that '800,000 premises would see a real-term rise
in their rates bill, where only 300,000 premises would see their
bill fall', and further alleges, without any evidence, that 'smaller
and medium firms are likely to be harder hit'. Independent evidence
and the work of rating specialists outside the VOA cause us to
be extremely sceptical about the Government's statements.
72. The Valuation Office Agency is an executive agency
of HM Revenue and Customs (HMRC). We therefore question the claim
made by Brandon Lewis, who described the Report as "independent
It should also be noted that the evidence used in the VOA paper
came with various caveats by the VOA itself. At various parts
of the paper, the VOA wrote that its professional judgement was
based on limited rental evidence (our italics):
The Valuation Office Agency (VOA) provided its
high level aggregate estimates of rental and rating assessment
movement in England since the last revaluation, based upon it
professional valuation judgement informed by the limited rental
data held as at the end of January 2012. [...] The indicative
aggregate estimates of movement in rental values, and therefore
implied tax changes (estimated changes to business rates liability)
in this document were compiled as a result of a specific, one-off,
exercise by the VOA. The high level estimates of rental
value movement were based on a combination of limited available
rental data and best valuation judgements by VOA, as at the
end of January 2012. They are not forecasts; at this stage
of the revaluation cycle and process it was only possible to provide
high level estimates as at January 2012 and are not a projection
to the assumed 2015 revaluation Antecedent Valuation Date (AVD)
of 1 April 2013.
The estimates are based on limited rental
evidence and informed by professional judgement of the movement
in property values since the last revaluation in 2010 as at January
2012. These were provided well ahead of any detailed work, which
the VOA would not do at this early stage in a revaluation cycle.
To do the full, detailed calculation VOA would need to go through
the full revaluation procedure. Neither the rental data nor
the judgements have been subjected to the rigour of moderation
and validation that we would expect to apply during a normal revaluation
exercise. It has been assumed that the statutory rate used
in contractor's basis valuations would remain unchanged. In making
our high level estimates we have not had regard to those properties
which appear in the Central Rating List for England and as such
any movement in the value of these properties is not reflected.
73. These qualifications suggest to us that the VOA
advised caution when considering the conclusions of its Report.
This point was raised by Edward Cooke, from the British Council
of Shopping Centres, who argued that the VOA appeared to acknowledge
that its figures were "cobbled together" and that they
were "not sufficiently well tested".
Mark Williams, Chairman of the Distressed Town Centre Taskforce,
gave a forthright opinion of the reasons why the Government chose
to delay revaluation:
It is political. I cannot see any other possible
answer, because the rating system, for all its faults, on a five-year
annual revaluation allows for fairness to come into it. You now
have this ridiculous situation where the most distressed towns,
like Bromsgrove, are supporting Bond Street, Walsall supporting
the West End. We have not yet come across someone who has benefited.
The Government acknowledged the need for limited
reform of Business Rates in its Autumn Statement 2013, and published
the terms of reference for the review of the Business Rates administration
in February 2014.
74. The delay in the planned 2015 Revaluation
of Business Rates until 2017 has been severely criticised by many
in the retail sector. The Government based its decision to delay
the Revaluation on a 'high level estimate paper' written by Valuation
Office Agency, which many organisations have criticised for its
lack of firm evidence. Indeed the VOA itself littered the paper
with caveats. The delay in the 2015 Revaluation of Business Rates
means that, until April 2017, Business Rates will continue to
be calculated on property rents set in 2008, before the recession
took hold. In justifying the delay in revaluation, the Government
referred to the fact that the retail sector represents only around
a quarter of the businesses covered by Business Rates. This may
be so, but it is a key quarter for driving the recovery. We urge
the Government to ensure that during the time before the next
revaluation, it works towards the complete reform of the revaluation
system, one of the ambitions of which should be the annual review
of Business Rates.
Business Rate link to RPI
75. The annual linking of rises in Business Rates
to the Retail Price Index was overwhelmingly criticised by our
evidence. The British Independent Retailers Association described
it as "damaging",
while the British Property Federation said that it represented
"a severe compounding effect on what businesses pay, with
rates bills in most parts of the country increasing far more rapidly
than rents and by over 200% since 1991 overall".
Indeed, the Government-praised Portas Review made the recommendation
that it should be linked to the Consumer Price Index (CPI) rather
than the RPI.
76. The Association of Convenience Stores (ACS) echoed
this recommendation, writing that the linking of annual rate increases
with the value of RPI inflation:
is an arbitrary mechanic that in recent years
has been particularly damaging. ACS advocates that the indicator
for setting business rates increases should be a 12-month average
of CPI in the previous year with a cap at 2%. The same as council
tax increases and in line with the Bank of England inflation target".
The British Retail Consortium also agreed that the
rate should be linked to CPI:
The existing approach of using a single month's
RPI snapshot creates uncertainty for property-intensive sectors
such as retail. Moving to a CPI-based escalator using a longer
run average will provide greater affordability and certainty.
77. The Autumn statement announced various measures
to alleviate the impact of Business Rates, including capping the
Retail Price Index increase of Business Rates in 2014-15 to 2%
(which was due to rise by 3.2% this April, based on the September
RPI measure of inflation).
The British Council of Shopping Centres advocated just such a
capping, "in line with that Bank of England's target for
inflation of 2% as measured by the Consumer Price Index (CPI)".
78. We welcome the Government's capping of
the inflationary limit of Business Rates to 2% for 2014-15. However,
because of the small business multiplier, those businesses in
the retail sector that do not qualify for small business relief
will see their business rates bills rise by 2.3% next financial
year. Furthermore, this cap will apply for one year only. We urge
the Government to reconsider this limited timeframe, and to stop
permanently the linking of Business Rates to a single month snapshot
of the Retail Price Index (RPI). Furthermore, the Government should
carry out a review to ascertain whether RPI or CPI is the more
appropriate index to which Business Rates should be linked. The
12-month average of the CPI or the RPI in the previous year, with
a cap at 2%, is a far more appropriate level at which to set the
annual Business Rate increase. This would be consistent with the
recent limits on council tax increases, and in line with the Bank
of England inflation target.
Business Rates relief
LOCAL AUTHORITY DISCRETION
79. Reductions in liability for Business Rates are
available for certain retail businesses; some relief is mandatory
and others are given at the local authority's discretion. Local
authorities have powers under Section 69 of the Localism Act 2011
to grant Business Rate relief, but "the local authority may
only grant relief if it would be reasonable to do so having regard
to the interests of council taxpayers in its area".
Brandon Lewis highlighted the power that local authorities have
in discounting business rates: "They can use it in a really
targeted way that is appropriate to their local area, because
they will know bestthey will know what High Street, what
part of business in their area, needs that extra bit of boost
that that kind of discount can give".
He later repeated this point:
Small business rate relief is a hugely important
part of that, but I would come back to [the point] that the onus
has to be on those local authorities to understand that their
long-term benefit, as a community and as a financial institution
as a council, relies on the business rates retention scheme.
80. However, many local authorities are not in a
financial position to discount business rates. As Martyn Hulme,
Managing Director, Co-operative Estates, told us, "There
is this tension for local authorities in terms of raising revenue
and the choices they have. It starts a downward spiral, in my
A Parliamentary Written Answer for 31 October 2013 revealed that
only 59 out of 326 local authorities had granted relief since
April 2012, totalling £8,234,500.
SMALL BUSINESS REDUCTIONS
81. One of two multipliers is applied to the rateable
value of the property when calculating Business Rates: the small
business multiplier; or the standard multiplier. The standard
multiplier is calculated after the small business multiplier
to ensure that the small business multiplier does not lead to
a reduction in revenue. In 2003, the Government introduced Small
Business Rate Relief, which introduced the following help for
· Properties with a rateable value of below
£6,000 would subject to a 50% discount. This has been increased
to a 100% discount from September 2010 until April 2014;
· Properties with a rateable value of between
£6,001 and £12,000 would be subject to a tapering discount,
ranging from 0% to 50%, on the basis of 1% relief for every £120
of rateable value. A taper to 100% relief has been in place since
September 2012, applying until April 2014;
· Properties with a rateable value of between
£12,000 and £17,999 (£25,499 in London) would be
subject to the small business multiplier only.
82. The Autumn Statement gave further welcome relief
specifically aimed at small businesses, with the Chancellor announcing
the following measures:
· The doubling of the Small Business Rate
Relief to be extended for a further 12 months until 31 March 2015,
which means that properties with rateable value of below £6,000
are not subject to any Business Rates;
· Properties with a rateable value of between
£6,001 and £12,000 are subject to a tapering discount
ranging from 0% to 50%, on the basis of 1% relief for every £120
of rateable value. A taper to 100% relief is in place until 1
· A discount of up to £1,000 against
Business Rates bills for retail premises (including pubs, cafes,
restaurants and charity shops) with a rateable value of up to
£50,000 in 2014-15 and 2015-16;
· Ratepayers receiving Small Business Rate
Relief who take on an additional property that would currently
disqualify them from receiving relief will continue to receive
the Small Business Rate Relief for a further 12 months.
83. Much of our evidence highlighted the plight of
small businesses, due to the fact that business rates are disproportionately
high compared with rent. Bank Machinea wholly-owned subsidiary
of Cardtronics Incwrote that the rating of Automated Teller
Machines (ATM) cash machines disproportionately impacted on the
operational costs of independent ATM operators:
There has in recent years been a trend towards
some Councils imposing Business Rates on cash machines. [
If Business Rates were extended to all cash machines, 20% of Bank
Machine's 4,300 machines would become uneconomic and would have
to be removed, and/or the cost of accessing cash would have to
be significantly increased. Imposing Business Rates on cash machines
is like imposing a tax on people accessing their cash. A tax on
cash will have far reaching consequences, some on individual citizens,
some on local businesses and some for the economy as a whole.
Evidence from Bank Machine called for local authorities
to be placed under a duty to identify small businesses:
Local authorities need to be placed under a duty
to identify eligible small businesses, to make this fully automatic
and ensure all are awarded Small Business Rate Relief (SBRR).
Councils should make greater use of the wide range of reliefs
they are able to offer to small rural firms. In a nutshell, lowering
business rates on ATMs would stimulate economic activity.
84. What is clear is that the Government is keen
to help small businesses, and the measures set out in the Autumn
Statement are a testament to that. However, the piecemeal approach
to helping small businesses does not address the more fundamentally
unequal basis of the tax. As the British Property Federation wrote:
The constant tweaks Government has to make to
relieve the burden on small businesses also raises questions about
the basis of this tax. To some extent the rates burden should
self-adjust at times of revaluation, redistributing the load between
those prospering and those suffering decline.
The Autumn Statement came after the conclusion of
our evidence sessions, and we were therefore unable to question
witnesses on it.
85. While we welcome the measures introduced
in the Autumn Statement 2013 to help small businesses further
in relation to Business Rates, the Government is not addressing
fundamental flaws in the way in which Business Rates are calculated.
The short-term tweaking of the Business Rates system is building
up problems for the future and, instead, the Business Rates system
need fundamental reform.
86. As a start, the Government must study the
level of taxation placed on small and medium retail businesses
compared with the level of taxation placed on large retail companies.
It should also provide clear guidance that Councils are able to,
and should be encouraged to, exempt ATM cash machines, in line
with arrangements for small business rate relief.
EMPTY PROPERTY RATES
87. Until April 2008, an empty property was subject
to three months' exemption from Business Rates from the date of
becoming empty. After this period, owners of an empty property
paid 50% of the Business Rates liability arising on the property.
This was raised to 100% liability from 1 April 2008. The British
Property Federation highlighted the problem of empty properties,
with the accompanying empty property rates:
Empty rates ultimately drive money away from
where it is most needed in helping to maintain and regenerate
the high street and is instead steered to fund other Government
spending. Empty units not only mean lost revenue for landlords
but the double costs of empty rates with loss of rent has meant
that savings, which otherwise would have been reinvested back
into units, are being eroded away to pay this tax. Research conducted
by RICS indicated that 89% of their membership felt that empty
property rates was restrictive to economic growth and had a negative
effect on investment across the sector.
Pilot scheme for empty shops on the High Street
88. When giving evidence, Professor Bamfield, Director
of the Centre for Retail Research, told us that "business
rates are horrific in some areas. We should consider financial
incentives for new entrants, i.e. new people who want to practise
retailing and perhaps will be the new Tesco or Sainsbury's in
20 years' time".
While we welcome the Autumn Statement 2013 attempt to regenerate
the High Street, by giving a 50% discount on Business Rates for
18 monthsbetween 1 April 2014 and 31 March 2016to
traders moving into a vacant property on the High Street, this
does not go far enough.
89. We are Pop Up is a company that helps
businesses to find short-term commercial space for different uses,
including retail. In the Autumn of 2013, it organised a petition
to promote 100% small business rates relief. Roger Wade, Chief
Executive of Boxparkthe first PopUp mall in the countrysubmitted
written evidence, which explained the proposal:
The Government should be encouraging PopUp units
across Britain and offering business rates relief for qualifying
small business tenants. This is potentially a sustainable solution
to revitalising our empty High Streets. PopUps are the future
breeding ground for the next generation of independent Retailers.
We recommend a qualifying small business tenant can claim up to
three months rates relief once per calendar year. The qualifying
business could be administered by an Independent Pop Up organisation
like We Are Pop Up, Pop Up Britain or similar body.
He went on to describe the benefits of such a proposal:
The small business tenant can test out business
concepts at relatively low set up costs. The landlord can fill
empty units and qualify for up to three months Business Rates
relief and hopefully develop a long-term tenant. The Government
can fill empty stores and hopefully after three months generate
long-term business rates.
90. The PopUp campaign was signed by 665 supporters,
many of whom posted comments. The following quotes are a selection
I want to see more independent and creative projects
taking root across the UK. The Government's support is critical
for a sustainable initiative to work.
We need to enliven out high street and open it
up to more independents and see less monopoly within our shopping
centres. How we shop is changing, our shopping centres and high
streets need to adapt.
As an owner and director of a small business,
I think pop-up and temporary stores are a great way of encouraging
more entrepreneurism especially amongst young people. Anything
that can be done to make entry into retail business more accessible
can only be a good thing.
Small businesses are the jobs engine of the British
economy. This initiative will help businesses start-up, survive
Vital for small business to get off the ground
and stop the high streets becoming charity only shops.
Many of our Shoreditch Works members are small
businesses who work in large shared offices, thereby making the
small business relief unavailable. This 3-month discount would
bring down the costs of working in shared facilities further,
allowing more companies to work in these collaborative and start
It seems to be an economically cost-free initiative
to use currently unused assets and encourage new businesses and
employers. What's not to like?
91. The current initiative to help bring empty shops
back into use is not working, as shown by the poor take up of
the £10 million Government fund set up in 2012 set up specifically
for this aim.
A 100% discount on Business Rates for three months for businesses
occupying empty premises has the potential to revitalise areas
by encouraging innovation and independent businesses. Such periods
of non-payment could have a stimulating effect on a specific area.
92. The high costs of Business Rates are preventing
new entrepreneurial businesses from appearing on the High Street.
We welcome the Autumn Statement's announcement that businesses
moving into high street properties that have been vacant for a
year or more will have their rates cut by 50% for 18 months. However,
we believe that the Government must go further. We recommend a
six months' Business Rates amnesty on businesses occupying empty
properties. This support would be an economically viable model
for the Government, as it would not only support those small businesses,
but could also regenerate the High Street by occupying empty shops,
and by giving local areas renewed vibrancy as community hubs.
93. We support the emergence of PopUp shops;
they are an excellent example of innovation in the retail sector,
but are adversely affected by an inflexible Business Rates structure.
In any review of Business Rates, specific attention should be
given to PopUp shops, and ways in which more can be encouraged
to participate in the High Street.
Other rate reliefs
94. Charity shops benefit from an 80% reduction in
business rates, which can be increased to 100% at the local authority's
discretion. Meryl Halls, Head of Membership Services at the Booksellers
Association, told us:
I put charity shops on my list of concerns for
bookshops, because Oxfam actually has more outlets selling books
than Waterstones, and they are benefiting from a fantastic range
of relief. It would be great to have the business rate system
looked at, because often our members are teetering on the edge,
and the rates can make all the difference between tipping them
over and not.
95. Bill Grimsey outlined the flaws in the current
rate relief for charities, using his own example of Focus DIY's
empty premises being transformed into a charity for two weeks
out of every six months, thereby avoiding the need to pay the
full business rates. He said that "there are loopholes out
there and the charity one needs buttoning up a bit, because it
has allowed charities to morph into retail chains and it has allowed
landlords to exploit other charities to get rate relief, and that
Rodney Atkinson went further, writing: "Charity shops with
their lowly or non-paid workers and freedom from Business Rates
(paid for by other shop keepers) must pay proper wages and rates
so that other retailers are not burdened to finance their subsidies".
96. The Charity Retail Association, defended the
current reduction in Business Rates for charity shops:
Charity shops rely on business rate relief to
remain profitable and raise over £220 million every year
for charity. This ability to raise unrestricted income is particularly
critical at a time when grants and other public sector funding
for the voluntary sector is being reduced. It also helps maintain
occupied units on the high street, with charity shops often investing
considerably in re-fitting shops and investing in neglected shopping
parades. This is turn can attract both shoppers and other retail
The DCLG Minister, Brandon Lewis, also upheld
I think it is right that we give advantages and
discounts to charity shops, but equally I thinkto an extent,
I suppose it could be seen to be politically incorrect to say
thisthat actually we undervalue charity shops. In some
areas, they get quite a bad press when, in reality, they can be
a huge part in bringing footfall back in. [...] What we are also
seeing starting to grow now through charity shops is they are
not just shops; some of them in themselves are becoming a community
hub, where they will have tea and coffee or where people meet.
That in itself is also very important.
97. Charity shops play an important part in
our High Streets, by raising much-needed revenue for good causes
and by providing a community space for local shoppers and volunteers.
However, charity shops benefit from 80% relief on business rates,
and this blanket reduction has loopholes which can be abused by
businesses purporting to be charities. It also has the potential
for charities to threaten other shops, especially bookshops, which
have to pay the full amount of business rates. The Government
needs to outline tighter definitions on what constitutes a charity
shop, and to report on its findings by the Autumn of 2014.
98. In the previous section we highlighted specific
changes which would alleviate the burden of Business Rates on
the retail sector. While these changes were supported by the retail
sector, a number of our witnesses argued for structural reform
of this element of taxation.
99. Edward Cooke, Director of Policy at the British
Council of Shopping Centres, told us which parts of the Business
Rates were in need of reform: "[T]he revaluation needs to
be looked at, the way that business rates are uplifted needs to
be looked at, the whole system for retail needs to be considered".
Martin Blackwell, Chief Executive of the Association of Town and
City Management (ATCM) went further: "Fundamentally, the
system is no longer fit for purpose. To have a system that is
based on fixed capital and fixed premises is no longer current
in today's world. The world has changed hugely in the five years
since the last revaluation in 2008".
The ATCM's evidence stated that "The first step for creating
the right conditions for adequate investment is a complete overhaul
of the business rates system. We fear that the current system
has a perverse effect on commercial investment in town and city
100. The Association of Convenience Stores also highlighted
the inequality embedded in Business Rates on the retail sector:
The relationship between cost of property and
business viability in retail (especially in town centres) is increasingly
unsustainable and radical reform is required. Business rates continue
to be a significant barrier to growth.
101. The changing nature of the retail sector was
described at the start of this Report, and Mark Lewis, Online
Director at John Lewis, highlighted this changing nature as the
reason why a review was necessary:
We are seeing an industry that is in a period
of dramatic change: in operations within the country, shifts of
patterns from one channel to another, the blending of channels,
and, then, also the breakdown of geographical barriers to trade.
This creates great opportunities for retailers to trade internationally
and also for overseas retailers to trade into the UK. From our
perspective, a review of the taxation structure in the round would
be very welcome.
Martyn Hulme, Managing Director, Co-operative Estates
agreed that "it would be worth having a clear look at that
form of taxation in a more enlightened way of business, as it
Liz Peace, Chief Executive of the British Property Federation,
stressed the need "for a fundamental rebalancing of Business
Rates between traditional retail and the less traditional forms
of retail. I know it is not easy, but if you were to look at the
turnover per pound of Business Rate paid in a little high-street
shop compared with an ASOS warehouse or something like that, it
would be fundamentally different".
102. Intu Properties plc, shopping centre owner and
operator, suggested the following issues that could be addressed:
Reviewing the impact of the 2008 changes to empty
rate relief and assessment of the merits of reinstating the previous
Examining the link between the business rates
multiplier and the Retail Price Index;
Consideration of the impact of transitional relief,
which at present acts effectively as a subsidy to businesses in
London and the South-East at the expense of business in less wealthy
Assessment of alternatives to business rates.
R Hinds suggested a reduction in the rates burden
borne by the retail sector, by the following means:
Simplest would be a reduction in retail rates,
which might not cost anything in the long run if it helped to
increase economic activity, but we understand that the books have
to be balanced in the short term so, at the very least, a rebalancingtown
centre retail rates reduced, while edge of town, retail warehouse
and out of town shopping rates remain the same or increase. At
the same time, town centre office space might remain the same
while other office and warehouse space would increase.
103. The latest Strategy for Future Retail, published
by BIS in October 2013, stated that:
Business rates have an impact on both retail
and non-retail sectors. The needs and concerns of retailers on
the business rates system are well expressed across many forums,
many consultations and many arenas, and this strategy does not
seek to duplicate this.
Brandon Lewis, DCLG Minister, reiterated the fact
that Business Rates are for retail and non-retail businesses,
and that "about 25% of all business rates is retail".
But this is not sufficient reason to resist a review of the system.
The current system was established when the High Street was a
different trading place than what it is today. The Government
has praised the Portas Review, yet has not implemented its recommendations
that relate to Business Rates:
Government should consider whether business rates
can better support small businesses and independent retailers;
Local authorities should use their new discretionary
powers to give business rate concessions to new local businesses;
Make business rates work for business by reviewing
the use of RPI with a view to changing the calculation to CPI.
104. The weight of our evidence stressed the importance
of a fundamental review of Business Rates, including the method
of revaluation. Unlike corporation tax or income tax, it is not
modified or amended in response to underlying economic conditions.
Ken Parsons, Chief Executive of the Rural Shops Alliance, agreed:
For a lot of people, you look at the accounts
and the rates bill does not actually seem to be a very big figure,
but the key thing is it is a fixed cost. It is there whatever
your profit, whatever your business, is doing that year. If one
were going to revise the system, then I would very much argue
for something that was much more related to the performance of
the business, rather than being a fixed cost year after year,
irrespective of trading conditions.
ALTERNATIVE WAYS OF CALCULATING
105. With the increasing use of the Internet for
retail transactions, another alternative way of calculating Business
Rates would be to base the tax on sales, rather than on rents
or rateable value. Helen Dickson, Director General of the British
Retail Consortium, made the following point to us:
We need to take into account the Treasury's need
to balance its books in the current economic climate. What we
perhaps need to bring more effectively into the equation is looking
at a closer link to how well a particular store is trading. At
the moment there is no link between business rates and that.
106. Business rates are a tax on property, and some
questioned the fairness of such a system. Tim Fallowfield, Corporate
Services Director at Sainsbury's, told us the following:
You can look at the existing system and decide
whether you need to change the component parts of business rates,
or you can do a fundamental review of the business-rates system
itself. In the United States, for instance, they have introduced
a main-street fairness tax, which is redistributing the tax burden
by applying effectively a local sales tax, which would obviously
apply equally to online retailers and bricks-and-mortar retail.
We would suggest that would be a very worthwhile review by Governmentto
try to make sure there is a level playing field.
107. It was argued that revaluation should be more
frequent that the current five years. Edward Cooke, from the British
Council of Shopping Centres, told us that "the five-year
quinquennial review should be shorter".
The National Franchised Dealers Association (NFDA) said of Business
In 2011 and 2012, business rates rose sharply,
resulting in an increased revenue for the Treasury of over half
a billion pounds. Business rates are one concern common to all
retailers whereby action would support businesses across all sectors.
Business rates are calculated regardless of turnover and in a
climate where consumer spending is falling these taxes are huge
burdens to struggling organisations. Given that the planned 2015
business rates revaluation has now been deferred to 2017, NFDA
recommends that any increase in line with inflation is cancelled
until the 2017 revaluation.
108. Written evidence from the British Retail Consortium
(BRC) stated that:
The debate about business rates is essentially
the debate about the future shape of our cities, our town centres,
our high streets and our communities. Whilst retailers are a central
player in all of these, there are many partners, large and small,
and all have views about what needs to be done. The BRC believes
it is essential to identify the barriers to future growth and
development and the drivers for decline, and then offer proposals
and solutionsbacked up by sound research, evidence and
datato central and local government that can be delivered
together. To this end, the BRC has recently appointed tax experts
EY to support a rigorous process of examining the options for
reform of the business rates system.
The BRC published its discussion paper, The Road
to Reform, in February 2014, which outlined possible options
for reviewing the Business Rate system. It is due to publish the
results of its options assessment in May 2014.
109. This BRC-commissioned, Ernst & Young research
into the Business Rates system was discussed in our final oral
evidence session. When asked about this review, the DCLG Minister
Brandon Lewis told us that "when anybody comes forward with
any research, it is always interesting to have a look at it".
110. In his Autumn Statement 2013, the Chancellor
finished his announcement of help to alleviate the pressure of
Business Rates with a promise of "reform of Business Rates
on the agenda for 2017 revaluation".
However, when the DCLG Minister, Brandon Lewis, was questioned
at the CLG Select Committee on 9 December 2013, he explained that
'reform' meant 'administrative reform':
The review in terms of improving administration
is looking at reforms to appeals and how we change it so businesses
can pay over 12 rather than 10 months, which helps cash flow somewhat,
as we have done for council tax.
He repeated the phrase he used at our Committee:
"The Treasury keep all taxes under review at all times",
and went on to say:
I know that the British Retail Consortium has
some work of its own going on at the moment. If anybody wants
to make suggestions we can feed through and have a look at, I
am always interested.
111. Rather than being 'always interested' in suggestions,
as the DCLG Minister told us in relation to a review of Business
Rates, we feel thatgiven the widespread discontent among
retailers about the blatantly unfair tax imposed upon themit
is incumbent on the Government to take the initiative and to carry
out its own review. Indeed, the Prime Minister has said that longer-term
reform of Business Rates needed to be looked at:
I think we do need to look at longer-term reform.
It's not going to be easy, because rates raise, whatever it isaround
£24 billionand I don't think there is any one solution
that is going to make everybody happy. But I think we've got to
start addressing this issue and understandingparticularly
this issue about internet retailing and High Street retailing.
] It's going to be a growing issue, and I think it needs
112. Longer-term reform has to be addressed, given
the fact that the United Kingdom has the highest property taxes
in the world, as shown by the table below:
OECD taxes on property, as a percentage of gross
OECD, last updated 17 January 2014
113. The pace of change in the Retail Sector
means that the Business Rate system, in its current form, is not
fit for purpose. The Government must act by carrying out a wholesale
review of the current Business Rate system, which is urgently
needed not only for the Retail Sector, but for other business
sectors that are also being affected. The Department for Business,
Innovation and Skills needs to initiate urgent discussions with
the Treasury and DCLG, to prepare the ground for a full scale
review and reform of Business Rates, which will allow retail businesses,
especially small and medium-sized businesses, not only to survive,
but to flourish in the current economic climate. The Government
has widely praised the Portas Review, yet has not acted on what
we believe is a vital recommendationa review of the basis
of the calculation of Business Rates. The Government must review
the whole systeminvolving local government and retail sector
organisationsand not simply tinker around edges by reviewing
the administrative details of collecting Business Rates. Indeed,
the Prime Minister has agreed that a longer-term reform of Business
Rates needs to be looked at. The Government's review must include:
whether retail taxes should be based on sales, rather than property;
whether the retail sector should have its own form of taxation,
calculated in a different way from other businesses; and how frequently
the revaluation of Business Rates should take place.
85 Ev 177 Back
The taxation system differs across the United Kingdom, and Business
Rates are a devolved matter. However, the system in Scotland and
Wales is very similar to that in England. Back
Ev 165 Back
Qq 376 and 378 Back
In Scotland, the rateable value of the premises is set by the
Scottish Assessors, and in Northern Ireland it is set by Land
and Property Services. Back
The multiplier is set by the Scottish Parliament for Scotland
and by the National Assembly for Wales. Back
BIS Retail Strategy, page 3 Back
Ev 159 Back
Ev w63 Back
Around 30% more, according to the Federation of Small Businesses
(Ev 171) Back
Ev w45 Back
Ev w16 Back
Grimsey Review, section 2, page 26 Back
According to The Grimsey Review, (page 27), at the time
of writing, rents had fallen by an average of 14% across the country,
according to the Valuation Office Agency. Back
PWC, The contribution of retailers to the UK public finances:
Total Tax Contribution, p 4 Back
Ev w84 Back
Ev 161 Back
Ev 167 Back
Valuation Office Agency's high level estimates of non-domestic
rental and rating assessment movements for England. Back
Department for Communities and Local Government, Business rates
administration review: terms of reference, 13 February 2014 Back
Ev w26 Back
Ev 171 Back
Portas Review, recommendation 7 Back
Ev 152 Back
Ev 173 Back
HM Treasury, The Autumn Statement 2013, p 45 Back
Ev 165 Back
Localism Act 2011, explanatory notes, para 159 Back
HC Deb, 31 October 2013, col 568W Back
House of Commons Library standard note, Business Rates, September
2013, page 5 Back
HM Treasury, Autumn Statement, 2013, pp 45 and 46 Back
Ev w20 Back
Ev w20 Back
Ev 171 Back
Ev 171 Back
HM Treasury, Autumn Statement 2013, pp 45-46 Back
Ev w21 Back
Ev w21 Back
Unprinted Paper, We are PopUp: Boxpark Rates Relief Proposals-Comments
sent to Committee Back
Ev 194 Back
Ev w16 Back
Ev w37 Back
Ev 159 Back
Ev w53 Back
Ev w45 Back
BIS, A Strategy for Future Retail, October 2013, p 25 Back
Q380 and Q376 Back
Portas Review, recommendations 6, 7, and 8 Back
Ev w73 Back
Ev 177 Back
British Retail Consortium, Business Rates: the Road to Reform,
February 2014 Back
Autumn Statement 2013, Hansard, 5 December 2013, c 1111 Back
CLG Committee oral evidence session, 9 December 2013, Q145 and
Supporting small businesses: David Cameron's Q&A at the
Federation of Small Businesses, 27 January 2014 Back