Recently, many businesses have expressed concerns about the new round of business rate revaluations, with the boss of Sainsbury’s, Mike Coupe, describing the system as ‘archaic’. While the new revaluations don’t take any more money from businesses overall, they do mean that while some businesses will see their rates bill decrease, others will see bills increase significantly. And as councils are funded by business rates, all this affects how much money councils get to fund services.
Rates, a local property-based tax to fund local services, were first introduced in 1572. Although ended for residential properties in 1990 when the Poll Tax was introduced, later replaced by Council Tax, rates were retained for business premises (everything that is not a domestic property – ranging from telephone masts to bus stops to lifeboat stations to hospitals). The system works by ascribing a ‘rateable value’ to property, with the rates bill calculated using a ‘multiplier’ figure. So if the rateable value of your business is £10,000 and the multiplier is 50p, your rates bill is £5,000. Before 1991, councils set the value of the multiplier locally, but since then it’s been entirely a central government responsibility. The government’s Valuation Office sets valuations of business premises. There are some exemptions to business rates. Businesses with a single property and a rateable value of less than £12,000 pay no business rates. And charities get a statutory 80% relief, which in Hastings the council makes up to 90%, funded locally.
Businesses can appeal their valuations – which has also caused big problems. Around 280,000 appeals from the last revaluation in 2010 still haven’t been considered. And the new valuations will trigger many more appeals. For councils, this is a nightmare. District councils such as Hastings now retain 40% of the rates collected (9% goes to the county council, 1% to the Fire and Rescue Service, and 50% to the government). So we have to repay 40% of any successful rating appeal, backdated to the last valuation – even though the council plays no part in setting the rates. What’s more, the revaluation dates to a time before the council retained any of the collected rates, so we’re repaying money we never actually received. All this makes financial planning difficult, as it’s impossible to know which appeals are going to be successful. Hastings Council recently had to repay over half a million pounds to a major supermarket after they successfully appealed their rate valuation. This year, we will have to repay some £730.000 following a successful valuation appeal from Ashdown House – which is a government owned building. £365,000 of this will be effectively repaid by the government – to itself.
From 2020, the government has said that councils will keep 100% of business rates. However, this 100% retention will be subject to ‘tariffs and top-ups’ – so money will be taken away from some councils that generate more rateable income, and given to those that generate less. Hastings is likely to lose out from that. But at the moment, we have no idea by how much.
So the business rate system is, in short, chaotic – for the council, it’s a funding stream that’s full of uncertainties and instability. For businesses, it’s unfair and cumbersome. So I’m with Mike Coupe on this: business rates are archaic, they need fundamental reform, and they’re not helping anyone.