Written evidence submitted by Breckland Council (IBR0058)
Treasury Committee: The impact of Business Rates on business inquiry
1 April 2019
Breckland District Council
Breckland Council welcome the opportunity to respond to this call for evidence, and submit our comments below in line with the Terms of Reference for the review.
The changes in reliefs and allowances
It is our view that Businesses generally see extra reliefs rewarded as a positive change, however, the trend is that these reliefs are being announced by Government with very little preparation, and with limited consultation with Local Authorities. This often means that there is a significant administrative burden on District Councils, who are left to sort out with the software developers the method for how the reliefs will be awarded in practice. There is also a concern that the reliefs appear to be more heavily influenced by national politics rather than evidence. For example, after the 2017 revaluation, concerns were raised by businesses nationally around the large increases in charge experienced by some. The Government responded by announcing a pot of money for reliefs which were designed to support those with the largest increases, although these businesses would already have been protected by Transitional relief. New reliefs are often added to the list without much evidence that the current list has been reviewed or amended before it is added to, or to check that the reliefs are working towards broadly the same policy objective.
In order for a more holistic approach to be taken, proper consultation should take place with Local Authorities before implementation, this would help ensure the relief and exemptions are implemented in the best way and helps to reflect local circumstances.
The ability of businesses to pay
Whilst collection rates remain relatively steady, the current economic climate is impacting on businesses ability to pay. We have seen an increase in the number of Hardship Rate Relief applications in the last financial year.
The relationship between Business Rates and the behaviours it drives in business
The creation of Enterprise Zones was designed to encourage businesses to invest in order to gain a rate free period, as long as the new property fell within the area covered by the Enterprise Zone. In more rural areas, this has not progressed as hoped, as often the initial infrastructure costs far outweigh any benefit from a rate free period which is preventing business investment. This is resulting in taxpayers money being required to provide upfront investment to enable these areas to grow.
Fair
The current system of valuations and appeals could be seen as fair, although the complex system of reliefs is making this less transparent.
In the current climate of high rents and wavering footfall, Business Rates are adding a cost burden on the high street. The Business Rate system also does not address the growing on-line type of businesses, who do not operate from large premises and may operate from home and therefore do not pay Business Rates, providing them an advantage over the more traditional high street type of businesses.
Support growth and encourage competition
District Councils have a very important part to play in supporting business growth in their areas and have been very successful in this since local retention of rates was introduced. The Small Business rate relief provides opportunity for small businesses to grow without the pressure of paying Business Rates whilst they remain small, but once large enough they move into paying rates, this helps encourage growth. Other reliefs also help to support growth, but these may only be short term and therefore may be limited in their success.
We do not see how Business Rates would encourage competition in a positive way. Competition may exist between Local Authorities to aim to entice businesses into their area over another Local Authority area, so that they retain the business rates (particularly cross county areas).
Provide certainty
The certainty provided by the business rates system is eroded by more frequent revaluations (there has been a move from a 5 and 7 year lists to 3 year ones going forward). This creates an issue both for businesses, who face uncertainty about what they will actually pay, and for District Councils who face uncertainty about the income they will retain. This is becoming a more serious issue as we move towards a system of 75% business rates retention as Local Authorities become more reliant on the income they can retain locally.
Be coherent
The addition of new reliefs to a system without the review or withdrawal of older ones makes it less coherent and it is less clear for Businesses what reliefs are applicable to their circumstances.
The impact of Business Rates on rental prices
The relationship between rates and rent does vary. It could be seen that a higher rental would give a higher Rateable Value and therefore higher Business Rates – and this is likely to be the case in strong economic areas. However, in more difficult economic areas where rates are high, rental prices could be lower in order to encourage tenants into the property and therefore protect landlords from becoming liable for rates on an empty property.
The impact of Business Rates on property prices
A property which attracts a high Rateable Value but is in a struggling economic area could experience a negative effect on its valuation for sale.
Alternatives to property-based business taxes
There is an argument for the introduction of a digital services tax to ensure that businesses who do a large proportion of their business online (and are therefore outside the current scope of a property based business rate) are taxed fairly. This could be done in a number of ways, by measuring the value of the business (for which valuation techniques already exist), taxing transactions of sales and services of the business, or as a supplement to the Corporation Tax. A further alternative would be to have a more radical review of property based taxed, not just for businesses, but also including Council Tax. Allowing Councils to levy onto Income Tax would generate a much more stable income source and be less administratively burdensome. This system would also have the advantage of being more transparent to the taxpayer and would arguably be fairer, as it would have a greater link to a customer’s ability to pay.
The problems associated with property-based business taxes
There is an administrative advantage to District Councils in billing properties as they do not move, but this is outweighed by the disadvantage of the current system not being flexible enough to include businesses which do not occupy traditional business premises. The lack of a link between the revenue generating ability of a business and the amount they pay in business rates creates disproportionality, and does not then link the charge with an ability to pay.
The impact of changes (proposed and actual) of Business Rates on Local Authorities
and Councils, and the high street
Some of the impacts of changes on District Councils have already been highlighted in this evidence.
There is still some concern in the sector that the new system of Business Rates Retention, which is due to take effect in April 2020, is still in its early stages of development and will not be ready to be implemented at the current deadline. If a wider review of relief policy could be on the table, it may be necessary to consider revising this timetable to ensure that whatever design the new system takes, it has time to be implemented correctly.
Another area within the system which creates problems for District Councils in particular is appeals and valuation changes. Districts currently take a significant portion of the risk of valuation changes and appeals despite the fact they have no control over the outcomes of the appeals, or indeed the original valuations. Across the country, a significant amount (c £1.4bn in 2017-18) of billing authority income from the business rates retention system is locked up in appeals provisions which could be usefully spent on local services. It had been proposed that the Government instead provide centrally for these appeals under the new system and a consultation paper on the subject was released in 2018; however, despite 97% of respondents supporting the proposals, they were scrapped.
With the imminent move to a system of 75% retention, and then in the future to 100% retention, it is vitally important that District Councils receive some clarity around how any new or revised system will work, and what risks will be involved to aid in their planning for the future and ensure their sustainability in the medium term.
Submitted April 2019