Business Rates Revisited

BLOG 197

BUSINESS RATES REVISITED

My friend, Michael Quinlan, has taken issue with my comments in Blog 192 in relation to rates.

His first point is that if rates are a tax on occupation, why does he pay rates on his property when it is not occupied, i.e. it cannot be let.  The answer is that the government want to encourage him to let it.  He does not have to pay business rates for the first three months the property is let (six months, if it is a commercial or industrial property), but the government do not want him to deliberately leave it empty.  Personally, I wish that governments would stop using the tax system to achieve non-revenue raising objectives as this needlessly complicates the system and obscures the fiscal objective, but this is probably crying for the moon.

Michael asserts that Harry Hyans left Centre Point empty for years in the early 70s until rents rose.  I thought that myth had been fully debunked years ago.  My recollection is that Centre Point was empty (or rather largely empty) for years because it was a badly designed building.  It had lots of long narrow offices.  It might have been a great open-plan building, but open-plan was not the norm in the 70s.  It was eventually occupied by the CBI, which was prepared to put up with the poor working environment in order to diffuse the continuous press comment that the building was being deliberately left empty.

Michael next points out that rates are excessive because valuations are carried out at infrequent intervals and become too high during a falling market.  I agree that five-yearly revaluations are too infrequent and that the system falls into disrepute when the government defers a revaluation for political reasons.  Yearly revaluations would be fairer, but probably unacceptably expensive.  But I do not think that the system should be damned for that reason.  There must be some sort of satisfactory compromise.  For example, values could be indexed in some way in the years between revaluations.  That is not wholly satisfactory because of course values of different properties do not increase at a single rate; indeed, even where rents rise generally, those in some areas fall.

But I do not think the problem is that rateable values are too high in a falling market.  The rateable values are used to apportion the overall rate burden over all business, so if rents either rise or fall proportionately that allocation remains constant.  Of course, if at a time of falling rents the costs of providing local services rises, there is bound to be pain to businesses.  But that is not the fault of rates; it is because the rising costs have to be paid for somehow.

A bigger problem is that if business A’s rates are based on say, four-year old values and rents are falling, business A will squeal, but if rents are increasing, it won’t complain that it is paying too little.  Leaving aside new buildings, if the stock of buildings is constant and the rate is unchanged (both unrealistic assumptions in practice of course), if business A’s rental value has increased, business A benefits from paying too little in rates, but for business A’s value to rise, business B’s value has to fall, so business B is in effect subsidising business A.  That is particularly unfair because it happens at a time when business B can least afford to overpay.

Michael’s next point is that central government increasingly loads more costs onto local authorities and therefore onto business rates.  I am not sure to what extent that is true.  The business rate itself, the poundage as it used to be called, is fixed centrally by the government and, while it increases each year, appears to do so only to reflect inflation.  Local authorities are reluctant to increase council tax (because that is payable by voters) and cannot increase business rates (because they have no control over the rate) so are largely forced to cut services to reflect the reduced funding.  Whilst views differ as to whether or not that is a good thing, it does not increase the rates.

Michael’s final point is not actually the fault of business rates at all.  This is that if local authorities ban parking, or install parking meters that gobble up loose change at an astounding rate, in their local High Street, it is hardly surprising that o one wants to shop there.  That means that at the next revaluation, the business rates from High Street shops will fall and the local authority will be worse off.  Accordingly, why do they do it?  I cannot take issue with Michael on that one.  However, I doubt that parking charges are what are killing the High Street.  I think it more likely that, even with free parking, there would in most cases be insufficient parking space available in the town centre for shoppers.  I also suspect that the days of the High Street as a generalised retail area are long gone, as the out of town superstores are able to provide a far greater range of products than their smaller High Street outlets and we are now used to this wider choice.

ROBERT MAAS