Labour must come clean on Business Rates, says agency

A prominent agent campaigning for business tax reform is urging Labour to come clean on its policies for business rates and other commercial property taxation. 

John Webber, head of businesses rates at Colliers, says Labour recently promised to “breathe new life” into high streets, unveiling a five-point plan including reforming business rates and tougher laws on shoplifting. But he says it’s been less clear about what this system of business property taxation would be and when pushed to clarify, has failed to come up with any concrete plans.

Business rates, which raise £30 billion a year, are an important source of revenue for local authorities and pay for essential services. However, most property industry figures say it needs reform, especially with the current multiplier at 54.6p in the £, making it a 55% tax on local businesses. 

Webber says: “Nowhere else in Europe do businesses pay approaching 60% the rental of their premises in property taxes and at current levels this is unsustainable for business and deters new investment. The current business rates system has contributed heavily to the decline of the retail and hospitality sectors and the decline we are seeing in the high street.

“Successive Conservative governments have promised to reform the tax, but none have delivered, just making the system more onerous and expensive for the ratepayer as time has gone on. Whilst it is encouraging to read of Labour’s aspiration to breathe life back into our high streets, unless they tell us what they plan to do, how can anyone scrutinize their plans or take their calls for change seriously?”

Webber says options for specific action by Labour cover three areas:

1. Land Value Tax. Webber says: “One theory, previously mooted, is that Labour might consider a system based on a valuation process, probably a mix of land and rental value. Colliers does not think this would work as the tax would most probably be levied on landlords. Business rates were set up to pay for the amenities and services that businesses use in the community so there should surely be no dispute that such businesses should pay something for these services.

Webber believes landlords would most probably recuperate the money by hiking up rents charged to occupiers and he adds: “We would therefore have a system whereby businesses would end up paying more to the landlord but unlike under the present system, would be unable to appeal against their combined rent and rate bills that the landlord would introduce. So how would they benefit? If Labour’s plans went down this route, they would just complicate the system and lead to more disputes.”

2. Digital Services Tax. Labour has pledged to “rebalance the burden of business property taxation away from the high street and retail firms towards online tech giants”.  This includes a £3 billion tax raid on tech companies such as Amazon and Facebook. 

Webber believes Labour has since abandoned these plans after being warned that such a policy would result in a trade war with the US. It also planned to help small businesses by increasing the threshold for small business rates relief, but he adds that as this was also to be funded by an increase in the rate of the digital services tax, might one presume this may be abandoned too?

3. Empty Property Relief. Labour has also been urging the Government to “trial a “new shops bonus” to incentivise the legitimate business and beef up legal identity requirements for someone setting up a new company. Under the plans, shop owners would be offered a three-month business rates holiday in the first year in new premises. This would come in from month seven to nine to ensure the new business is viable and legitimate before it benefits from taxpayers’ cash. The business rate discount would be paid for by reallocating funding currently used to provide three months of ‘empty property relief’. Labour says this relief currently goes to the landlord, rather than helping new tenants.

Webber comments: “Our view is that this thinking rather misses the point. Landlords often have a 12-month gap before finding suitable tenants, so to “clobber” them with empty rates is unfair and will do nothing to speed up re-letting. Then to offer new businesses a 3-month rates holiday 7-9 months in, also suggests the people drawing up these schemes have never set up a business – most new businesses fail due to a lack of cash flow in the early months since that’s when they need the help. The reality is businesses need a lower multiplier not window dressing nonsense.” 

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