The “sticking plaster” system of reliefs for business rates isn’t working, and with councils set to retain a greater percentage of business rates from next year, this problem will only get worse, the Commons treasury committee inquiry into the impact of business rates was warned yesterday.
Richard Watts (Lab) leader of Islington LBC and chair of the Local Government Association’s resources board, told the committee that the £2.6bn which is currently sat in council bank accounts in case of successful appeals from businesses is a “real problem” at a time when “we are closing libraries and children’s centres”.
He said that around 66,000 appeals against the 2010 valuation of business rates are still outstanding, and described business rates as being valued on “an odd set of methodologies” that it was hard for the Valuation Office Agency, which sets rateable values for commercial properties, “to coordinate across diverse areas”.
British BIDs, which represents the UK’s 400 business improvement districts, is now calling for the VOA to be devolved.
Such a move was also recommended in an Arup business rates review report co-written by LSE professor Tony Travers and published in 2018, which claimed that doing so would “improve efficiency and accountability of valuations, enable more frequent valuations and value capture”.
British BIDs’ chief executive Chris Turner complained that there is “no real relationship between the valuation authority system and appeals system and what’s happening on the ground”, and called the high number of outstanding appeals from 2010 “preposterous”.
He claimed there was a “golden age… when you could have a grown up conversation with people from the VOA – that seems to have been severed”.
“We want someone we can have a sensible conversation with at the valuation office…the national system isn’t working,” he told the committee.
Ojay McDonald, chief executive of Association of Town and City Management said that part of the problem is that the VOA is “not adequately resourced”. ”We have seen the demise of local contacts,” he said. “There are no good words to be said about the valuation system by anyone…it is probably the biggest complaint I hear.”
Mr Turner cited research his organisation had done in Winchester which showed discrepancies in how business rates are applied. “We can’t understand why in the same parts of the district retail has gone up by 12.3% and offices have gone down by 0.2%- it seems odd,” he said. “We get anecdotal stories about pubs where it’s gone up drastically by 130-140% for one particular pub – [the owner] closed it because she couldn’t afford it. But for another pub, that doesn’t happen.”
There were also calls all-round to reform the system of business rates reliefs. While total government take from business rates is around £30bn, the four-year discretionary rate relief (DRR) fund, which was made available in 2017 to help businesses pay their rates bills, is made up of only £300m, which West Midlands CA mayor and former managing director of John Lewis Andy Street told the committee is “a tiny percentage” and “not all of it is taken up”. “Reliefs are built on wobbly foundations…extending relief is not the solution. We have to have a wholesale piece [of reform],” he said.
Mr Watts called for a ”more flexible local system of reliefs” rather than a national system, which he said is “very difficult and expensive to implement locally”.
Cllr Watts said that in 2017 when business rates reliefs came in, “it wasn’t that difficult” to administer. “The nice thing about property based tax is that it’s really hard to hide property, and I think there is a core argument for it.”
But he added that more recent reliefs brought in since have made the system more complicated, and explained that councils are having to invest heavily in software to implement these changes. “If we had been consulted before they were brought in, we could have highlighted this and it would have made our lives easier,” he said.
Mr McDonald told the committee that the fact there are “so many ad hoc reliefs” is “symptomatic of the problems we have with the business rates system”. “We get so many reliefs piled on top of each other,” he said. “There is much more that could be done in making them more automatic and easier for businesses to be able to get their hands on some of these reliefs. I am told by my members that some businesses out there don’t even know about these reliefs and can’t access them because it might be fairly poorly structured. This needs to be looked at.”