Written evidence submitted by UnibailRodamcoWestfield (IBR0085)

 

 

Unibail-Rodamco-Westfield response to the Treasury Select Committee: “The Impact of Business Rates on business” – Submission to Inquiry

Written evidence submitted by Unibail-Rodamco-Westfield

Executive Summary

1.1   Unibail-Rodamco-Westfield (URW) welcomes this inquiry to address fundamental issues affecting businesses in terms of how the rates system works, how it is administered and the ever-increasing level of liability now payable. The wellbeing of hundreds of thousands of small and large retail businesses, the three million people who are employed in the sector, as well as investment from UK and international retailers and landlords is dependent on a sustainable tax system.

1.2   The current Business Rates system is outdated, business rates do not rise and fall in line with the economy and performance of businesses. It does not consider the rapidly changed economy i.e. the shift from bricks and mortar to online. The business rates system is damaging the very businesses who invest in store portfolios that offer an experience different to that of online retailers, pay higher rates of business rates tax than online competitors and is one of the UK’s largest employers. 

1.3   URW has invested over £6bn in the UK and created Europe’s two largest shopping centres, Westfield London and Westfield Stratford City. The two centres support 30,000 employees and generate over £2bn in retail sales. 

1.4   Retail projects such as Westfield London and Westfield Stratford City are catalysts to widescale regeneration. There is currently over £32bn worth of inward investment surrounding URW’s three London sites which will bring new jobs, homes, offices and retail, and places as part of urban and mixed-use town centre development, along with cultural and learning institutions

1.5   URW has £2bn+ worth of further UK investments planned including a new development in Croydon. The current factors of political and economic uncertainty, coupled with rapidly rising business rates, and retailers entering administrations, are adding increasing pressures to landlord and retailer investments as well as the wider regeneration investments.

1.6   Although, some improvements have been made over recent years, such as the introduction of various targeted reliefs, and the taking out of liability of many small businesses where their rateable value is below a certain level, these do not, in URW’s view, go far enough.

1.7   2018/19 business rates receipts are forecast to reach £30.4bn business rates, a growth of 52% in 9 years since 2010 (£20bn). By comparison, retail sales have grown less than 13% to £312bn (excluding online) which indicates an unfair system which is hindering retail performance and future investment. Online business rates only account for 0.6% of sales.

1.8   London is seeing unstainable rate rises. From 2010 list to 2017 revaluation - England has seen a +4.8% growth, however, London has increased +27%.  In London, Bond Street shops have seen a +100% increase. Westfield London has seen a +96% retail rateable value increase bringing total rates payable from Westfield London in 2019/20 to circa £68m. At Westfield Stratford City there was a +43% retail rateable value increase bringing total rates payable in 2019/20 to £47.7m.

1.9   Rates is doing nothing and arguably accelerating investment away from traditional retail and ultimately investment and employment. The retail investment, as evidenced by Westfield London and Westfield Stratford City, is necessary for urban regeneration bringing further investment including much needed housing, employment and ultimately additional rates revenue to the Government.

2.0 Business rates, and the rating system as a whole, needs to be reviewed as a priority to ensure retailers and the retail industry itself is sustainable for the long-term. URW therefore urges a more fundamental reform of the system which should review as a minimum the following headline issues and:

Introduction

2.1     URW welcomes this timely opportunity to provide its views, comments and recommendations to Treasury Select Committee on “The impact of Business Rates on Business”.

2.2     URW is the premier global developer and operator of flagship shopping destinations, with a portfolio valued at €65.2 Bn as at December 31, 2018, of which 87% in retail, 6% in offices, 5% in convention & exhibition venues and 2% in services. Currently, the Group owns and operates 92 shopping centres, including 55 flagships in the most dynamic cities in Europe and the United States. Its centres welcome 1.2 billion visits per year. Present on 2 continents and in 12 countries, URW provides a unique platform for retailers and brand events and offers an exceptional and constantly renewed experience for customers.

With the support of its 3,700 professionals and an unparalleled track-record and know-how, URW is ideally positioned to generate superior value and develop world-class projects. The Group has a development pipeline of €11.9 Bn.

In the UK, URW has invested over £6bn in the UK and operates the two largest centres in the UK, Westfield London and Westfield Stratford City. The two centres generate over £2bn in retail sales and support 30,000 permanent jobs. 

Retail projects such as Westfield London and Westfield Stratford City are catalysts to widescale regeneration. There is currently over £32bn worth of inward investment surrounding URW’s three London sites which will bring new jobs, homes, offices and retail, and places as part of urban and mixed-use town centre development, along with cultural and learning institutions. The economic contribution of our existing centres is the equivalent of £22bn–£30bn in Gross Value Added (GVA) over the next 20 years, bringing substantial benefits to the London and UK economy.

URW investments, as well as the halo effect of the wider associated investments in the areas in which we operate, are under pressure due to the increasingly unsustainable business rates systems We urge the Government to urgently overhaul the system.

Before responding on the three listed topic areas, it is worth setting out the economic context for business rates in comparison to other taxes both at a UK and OECD level and more specifically on how it has impacted the retail sector.

The wider economics of business rates as a tax

2.3     As can be seen from the chart below, UK property taxes as a proportion of total tax revenue, is the highest in all OECD countries at circa 12.6%. This can be set against the OECD average of circa 5.7% with the next highest rate in Europe being France at circa 9.6%. This therefore makes the UK uncompetitive compared to other OECD countries in terms of property taxes and this needs to be urgently addressed to ensure the future investment of retailers.

 

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Valentina Romei March 2, 2017[1]

2.4     In Office for Budget Responsibility’s (OBR) recent “Economic and Fiscal Outlook” March 2019 [2] business rates are forecast to account for 1.5% of GDP in 2018/19. This compares to other taxes such as Income Tax at 9% and On-shore Corporation tax at 2.6%.

 

2.5     OBR confirmed that the outturn for business rates in 2017/18 was £30.3b and has forecast receipts to rise to £34.9b by 2023-24[3]. As a tax receipt, rates account for circa 4% of total tax receipts and this has stayed consistently around this 4% level and OBR forecasts this to maintain this relationship out to 2023-24.

 

2.6     What sets business rates out against most UK taxes is that it almost always goes up each year and does not flex with how the wider economy is behaving. It is increased on an annual basis by applying a measure of inflation. Until recently RPI inflation was used as the index to inflate bills annually but this has rightly been replaced by the use of CPI instead. This is a welcomed improvement as it has historically been circa 1% below RPI. However, this does not address the fundamental issue of rate bills increasing every year with no regard to how the economy has been performing. Those still facing transitional cap thresholds continue to face large increases.

 

2.7     There is a set way that government looks at setting rate multipliers at the start of a new revaluation period that has regard to rateable value movements between rating lists and rateable value losses from appeals. This process is carried out in accordance with the requirements of paragraph 6(1) of Schedule 7 to the Local Government Finance Act 1988 (inserted by paragraph 62 of the Local Government Act 2003). Since 1990, the rate multiplier that is used in a rate bill calculation, has risen by over 50%, to its current level for 2019/20 rate year in England of 50.4p in the pound (from 34.8p). During the last 10 years the increase has been by far the most aggressive from circa. 40p to 50.4p. This is then compounded with the increasing market valuations of properties, particularly in London, resulting in significant increases in tax burden payable year after year.

 

2.8     We will return to this issue later in this response and outline how the use of transitional rate relief has benefited one set of ratepayers at the expense of others.

 

2.9     The inherent logic of the rating system in England is that ratepayers contribute to the rates pool by reference to the net annual value (NAV) of the properties that they occupy. As the economy has evolved, and the rates burden has increased, there is a greater shift from retailers to look at the rent they pay being dependent on the performance of their store and therefore sales.

 

3.0     To complete this economic context, the following is worth noting as it evidences the burden that business rates has put on the retail sector in particular:

 

Companies failing

Stores Affected

Employees Affected

2019 (to end February)

15

266

2,706

2018 (12 months)

43

2,594

46,014

2017 (12 months)

44

1,383

12,225

2016 (12 months)

30

1,504

26,110

2015 (12 months)

25

728

6,845

 

 

URW economic context

The impact of changes in Business Rates policy since 2017 on businesses, in particular:
- the changes in reliefs and allowances
- the ability of businesses to pay
- The relationship between Business Rates and the behaviours it drives in business.

3.1     There is a plethora of mandatory and discretionary rate relief schemes that are targeted at small to medium sized businesses. These can be complex for ratepayers to understand especially where a ratepayer can qualify for more than one type of relief at the same time.

3.2     The fact that there are several schemes in place shows that the Government is aware that many ratepayers are suffering hardship as a result of the high level of business rates but is symptomatic of the need for a more fundamental reform of business rates as a whole. By providing rate relief, to certain sectors or small to medium sized businesses, this has meant that the rate burden has fallen on other businesses to pay and is now in fact shared between fewer and fewer businesses.

3.3     There is also the added issue of State Aid that restricts the quantum of any discretionary rate relief scheme in the UK in that there is a cap of €200,000 over a three-year period. This has meant that many larger businesses have either had little or no benefit from the available reliefs. 

3.4     Whilst there are many factors that go into the success or not of any business, it has become more evident that the cost of business rates is now affecting the viability of many investment decisions. The issue of online retail is not new but has become exasperated by the unlevel playing field in how the high street is treated in terms of being liable for a tax based on bricks and mortar, while online retail, by its very nature, pays significantly less in terms of business rates. This imbalance needs to be addressed, so that online pay their fair share in contributing to the funding of local services.

3.5     As has been seen on the high street it is not just small businesses that have been or are suffering from business rates becoming more and more of a burden. Many significant large businesses have also suffered with some now no longer in existence such as BHS or some have gone into administration such as House of Fraser that is now being rescued in part by Sports Direct.

3.6     Therefore, it is URW’s view that while some of the recent government initiatives since 2017, such as £675m for Future High Streets Fund and High Streets Task Force, the provision of Retail Relief and improvements to Small Business Rate Relief, have assisted some businesses, these do not address the fundamental issue that this tax does not flex with the economy and how it’s also affecting larger businesses who are also large employers. It just increases year on year with no regard to how the economy is performing.

3.7     We will return to this issue in the next section by looking at how it can be a disincentive to invest, how transitional rate relief is inherently unfair in terms of benefitting one set of ratepayers against another and also on how changes to the rating appeal system have been poorly implemented and compounded by a lack of funding to the Valuation Office Agency.

 

How the current Business Rate system measures up against the following pillars of good tax policy: 
- Fair
- Support growth and encourage competition
- Provide certainty
- Be coherent.

3.8     The current regulatory scheme for the year on year increased burden of rates can be traced back to the Local Government Finance Act 1988. These regulations set down how a multiplier is set at each revaluation and also on how the rate multiplier is uplifted by inflation annually thereafter until the next revaluation.

3.9     It is true that the one of the pillars of the rating system is that it should be revenue neutral between the last day of the preceding revaluation period and the 1st day of the next. However, this is only a mechanism to maintain the tax receipt at the start of a revaluation period but is then subsequently uplifted thereafter on an annual basis by inflation. Hence, while the stock of rateable assets has grown over time, so has the rate multiplier with the current rate at 50.4p in the pound for large businesses. This has increased the burden year-on-year and will continue to do so until this tax is fundamentally changed to flex with the economy.

4.0     Therefore, the Government should legislate to change this uplifting mechanism and the concept of tax receipts neutrality at a revaluation. The tax should be allowed to flex with the economy.

4.1     URW understands the need for some form of transitional rate relief to limit increases for those whose bills have increased significantly as a result of a revaluation. However, transition in the form adopted in England by Ministry of Housing, Communities and Local Government (MHCLG) does introduce unfairness into the rating system: it provides support for one set of ratepayers at the expense of others.

4.2     URW believes that the provision of such relief is in the wider public interest. URW believes therefore that such relief should be funded by general taxation and not from other ratepayers. Current legislation prevents this. URW believes MHCLG is mistaken in its view that it is those ratepayers whose bills reduce who are the beneficiaries of revaluation. Making these ratepayers fund transitional relief adds insult to historic injury and cannot be justified. It is those whose bills qualify for relief that are the real beneficiaries of revaluation.

Who benefits from revaluation?

4.3     Some form of transition has been in place since 1990. URW understands the rationale underpinning providing transitional relief for ratepayers whose bills would otherwise show a marked increase following a revaluation.

4.4     The inherent logic of the rating system in England is that ratepayers contribute to the rates pool by reference to the net annual value (NAV) of the properties that they occupy.  However, rateable values are rebased only every 4 years (7 years for 2010 list but will be 3 years from 2021) so it is only at that stage that ratepayers are paying based on the NAV of their properties.

4.5     Between revaluations NAVs will change: some will decrease, some increase and by varying amounts. Ratepayers whose NAVs have gone up by less than the average will be contributing at a level higher than they would if revaluations were to take place more frequently. Ratepayers, whose NAVs have gone up by more than the average, will be paying less. It is only at revaluation that bills are reassessed and those ratepayers whose bills should fall have the relative movement of their NAVs taken into account.

4.6     It is the constraints of the rating system that have led to ratepayers being disadvantaged prior to revaluation. A revaluation does not give ratepayers a benefit but rather it removes the disadvantage that has been accruing in the years between revaluations. Requiring these ratepayers to meet the cost of the relief perpetuates the disadvantage suffered by those ratepayers. Ironically, it is those who receive the upward transitional relief who have been benefiting up to the point of the revaluation and the granting of relief perpetuates that benefit.

4.7     URW can see the need for a scheme of upward transition over a rating list period where as a result of a revaluation there are some dramatic increases in liability. But this should not be paid for by ratepayers whose bills should come down but instead be paid for out of general taxation.

Should transition schemes be self-financing?

4.8     The provision of relief to one set of ratepayers is an interference with the inherit logic of the rating system and creates unfairness between ratepayers. That interference and unfairness is exacerbated by putting the cost of relief onto other ratepayers who are expecting a reduction in liability.

4.9     The rationale to provide support to businesses whose bills would otherwise increase significantly is that it is in the wider public interest. Or, to put it another way, it is not in the wider public interest for businesses to fail as a result of a significant increase to their rates bill. But it is not clear why any relief should be funded by other ratepayers. It is definitely not in the interests of those other ratepayers and the increased costs will affect their relative competitive position.

5.0     The logical conclusion is that, as it is the economy as a whole that benefits from the provision of support to businesses whose rates bills are increasing, then this cost should be met from the exchequer, i.e. through general taxation. Post the 2017 revaluations there was £3.6bn of transitional increases funded against £3.6bn of transitional decreases.

5.1     It should be noted that Welsh Government in their consultation on “Proposed arrangements to provide transitional relief to support small businesses adversely affected by the 2017 non-domestic rates revaluation” (30th September 2016), stated that the costs of their proposed transitional relief scheme will be entirely funded by the Welsh Government and not by other ratepayers. This scheme has now been implemented and is fully funded by Welsh Government.

Should transition be different for small and large businesses?

5.2     Government policy has, for some time, been to reduce the impact of rates on small businesses by various initiatives that provide some form of rate relief that is often only for a short period.

5.3     It has attempted to achieve this in many cases by applying more favourable arrangements to properties with small RVs. Other businesses fund this subsidy through the small business rate relief supplement.

5.4     URW believes this policy is misguided as not all the relief will go to small businesses. The current approach gives favourable treatment to properties with small rateable values. But the correlation between small rateable values and small business units is at best weak. There are many examples of shops and retail outlets, as well as other hereditaments such as ATMs and mobile network operator masts, that have low rateable values but are part of large retail chains or mobile telephone providers. Branches of banks and building societies will also have, in some cases, small rateable values leading to the absurdity of them being treated as small businesses.

5.5     Therefore, URW believes there should be a radical overhaul of the current indiscriminate approach based on rateable values to prevent a significant number of profitable large businesses, deemed to be small or medium businesses based on level rateable value only, benefiting from lower upward and higher downward transitional phasing of liability at the expense of genuine small businesses for which the relief is meant to be provided. As stated earlier, we believe that downward transition should be removed.

5.6     For the new “Check, challenge, appeal” (CCA) system, the regulations including transitional relief, have adopted rateable values as a defining factor as to whether a ratepayer is to be treated as a large, medium or small business. Dependent on which side of an arbitrary rateable value-divide a property falls can make a significant difference to the rates payable. For example, in connection with transitional relief, if a rateable value is £100,001 or more, the ratepayer has faced an increase of up to 42% plus inflation in the rate year 2017/18 when compared to 2016/17, whereas if the rateable value is £100,000 that increase will be limited to 12.5% plus inflation. 

5.7     This cliff edge effect to how a relief system works is unfair and at the very least some sort of tapering in the relief between rateable value bands should be introduced. Tapering of a relief is not new and is provided for Small Business Rate Relief.

5.8     There must be a better way of judging what is a small, medium or large ratepayer so that reliefs are targeted to ratepayers that are in need of financial assistance/support at the start of a revaluation period and throughout the life of a rating list if necessary. Perhaps reference to ability to pay both at an individual and across sector level should be considered when considering the criteria and provision of any rate relief?

5.9     The rate liability for retailers in URW’s London shopping centres, now considered to be larger properties for upward transition purposes with a rateable value above £100,000, have seen the maximum increase for upward transition increased from 12.5% (2010 Rating list 1st year max. uplift) to 42% in first year of the current revaluation period i.e. 29.5% increase between revaluation transitional schemes in the first year. These max. uplift percentages grow to 32% in 2018/19, 49% in 2019/20 and 16% in 2020/21. These can be compared to 17.5%, 20% and 25% for similar rate years in 2010 Rating list. This shows that the 2017 transitional scheme is much less favourable for large ratepayers compared to the 2010 Rating List.

6.0     Retail was most heavily impacted by the changes to transitional arrangements in 2017 where of £1.3bn (36%) of the £3.6bn recovered via upwards capping comes from retail whereas as only £0.6bn (17.8%) of the £3.6bn of downwards relief comes from retail.

6.1     URW believes that it must be the case that, when setting the percentage increases for the 2010 revaluation, MHCLG had concluded that those were reasonable for businesses to bear.  In view of that, it is difficult to understand why MHCLG believed that such a dramatic increase in the max. upward transitional percentages can be considered reasonable and would not impact the viability of many businesses. This has considerably affected the retail sector, and in URW’s London shopping centres, as they have also seen at the same time significant increases in rateable value.

6.2     Moving the valuation date from April 2013 to April 2015 meant the adjustment from April 2008 values (2010 list) was far greater. The upwards movement in London property resulted in a far greater valuation increase for retailers and rates payers to settle their bills. Conversely, those benefitting from a downward movement suffered for a further two years before realising the benefit of the delayed revaluation. To compound this issue as noted above, the transitional caps for upwards movements were altered dramatically for large business meaning the large London increases were immediately payable by +42% increases in yr1.

6.3     URW welcomes and supports the introduction of shorter revaluation periods. However, there is now a move towards even shorter revaluation periods with some industry commentators advocating a move to annual revaluations to allow for the rates system to more truly align with how the economy fluctuates.

6.4     A move from 3-yearly revaluations, down to annual ones, should only be considered if the Valuation Office can be adequately resourced and should be balanced against the need to incentivise investment.

6.5     Unless multipliers are frozen or reduced, then as the economy improves so would rental levels go up that are the basis of this tax i.e. higher rents will be used to base the rateable on and this in turn will push liabilities up with more frequent revaluations.

6.6     The Government should therefore consider freezing business rates at its current level and remove the annual uplifts in multiplier and let other taxes make up the shortfall in tax receipts. An increase in tax receipts from business rates, as a result of investment in existing properties or the building of new ones, should also be used to fund a reduction in multipliers for all over time a move the multiplier on a gradual basis back down towards its level back in the 1990’s.

6.7     As is the case in Scotland, government should look to introduce a “Business Growth Accelerator”. This provides an incentive to invest by:

6.8     This initiative for new build or investment to improve existing premises should be implemented in England to support and incentivise investment in all sectors so as to provide a level playing field. In addition to this, more longer-term exemptions should be looked at to support the Government’s drive towards a greener and a less carbon reliant society. As was the case with some microgeneration projects, rate relief was provided for the whole of the revaluation period. This will provide more certainty with regard to business rates costs. At present many renewable energy projects, such as new district heating or CHP (Combined Heat & Power) schemes, are finding the business rates burden a disincentive to invest and are making the projects unviable.

Other issues that need to be considered

Business Rates Retention

6.9     As the retention of business rates revenue increases, it is essential that local authorities use policy to grow local economies and consider what is best for High streets ahead of any focus towards targets for revenue retention.

 

7.0     Therefore, Billing Authorities should be regularly reminded by MHCLG that they must not have any regard to the financial impact on revenue caused by the alterations they are legitimately asked to make. Such alterations should be made promptly. All Billing Authorities should be obliged to employ suitably qualified staff in a senior role with qualifications from the IRRV and or RICS. Where the billing authority has a different interpretation of the law from the ratepayer, the Billing Authority should make enquiries of the IRRV Technical queries resource and share the response with the ratepayer.

7.1     Where agreement cannot be reached, there should be free access to an appeal mechanism available to ratepayers against local authority decisions on billing matters, since as things stand billing authorities can simply refuse to make refunds and fail to properly address the correct application of the law.

7.2     The ratepayer currently has no access to justice in such instances. As an additional incentive to Local Authorities to promptly refund rates overpayments the interest rates on over payment should be amended to have effect even during periods when interest rates are very low. i.e. a positive interest rate should always apply. An alternative would be to remove rates collection responsibilities from local authorities.

7.3     There is also a lack of uniformity between billing authorities in the provision of discretionary rate relief.

Empty Rate Relief

7.4     In England & Wales with effect from 1 April 2008, many vacant buildings that previously could claim rate relief have now been left in the position of having to pay full rates. With the inability of many property owners to still let property, this continued and unjustified significant rise in rate liability needs to be addressed.

7.5     The Government continues to believe that, in the long term, beyond an initial rate-free period, it is right to charge rates when properties stand empty, since this increases incentives to re-let and re-use empty property and avoids subsidising owners of empty properties.’ [8] This assumption has proved to be flawed as it has in fact discouraged investment and penalises property owners. Rating has always been a tax on occupation and hence charging a rate liability when an owner/landlord has no rent to pay the rate bill, seems to add insult to injury.

Discretionary Rate relief - Section 44A of the Local Government Finance Act 1988

7.6     Billing authorities can provide discretionary unoccupied property relief where it appears that part of a property is unoccupied and will remain so for a short period only. It is aimed at situations where perhaps there are practical difficulties in occupying or vacating a property in one operation, or where a building or buildings on a manufacturing site becomes temporarily redundant.[9]

7.7     Whilst the provision of this relief is discretionary, there is now an unlevel playing field with regard to its provision in that some billing authorities have funds to provide while others do not, as a consequence of reduced budgets. The provision of this relief should be based on a uniform and equitable basis and not based on whether one billing authority can afford it or not.

7.8     Hence additional government funding should be provided for this relief out of central funds.

The New Check Challenge & Appeal (CCA) System

8.0     The introduction of a new appeal system in England from 2017 has been poor in that it has added additional administrative costs to ratepayers to just start the process. Each ratepayer has to register to use the IT system and have to register each property they are liable for on an individual basis. There have been issues with ratepayers not based in the UK as well.

8.1     For such a fundamental change to the rating appeal system one would have thought that the IT systems would be ready to use from day one but instead they are continually being updated and are still not fit for purpose. This has delayed the appeal system.

8.2     There is also now the need for a ratepayer to initially confirm property data such as floor areas and changes to a property before any challenge to the level of rateable value can start. There is a need in more complex cases to request a copy of the valuation as these are not provided online for example for a property valued using a Receipts & Expenditure method of valuation. This adds delay to the process.

8.3     If a ratepayer wants to challenge the rateable value, then the onus to prove the VOA is wrong is now firmly on the ratepayer. There is also a lack of transparency from the VOA in terms of what evidence it has used to arrive at the rateable value. This makes it impossible for businesses to judge whether their assessments are fair and how long their appeal may take to resolve. It is the only tax system that requires the tax payer to make significant enquiries to establish the basis of their tax liability at the outset.

8.4     The VOA argue that, as an executive agency of HMRC, it is subject to the Commissioners for Revenue and Customs Act 2005 (CRCA) which covers:

 

8.5     This has been used as a reason for not providing any rental information upfront, so a ratepayer can assess whether to challenge the liability or not. As outlined above this is unfair and unlike any other tax.

8.6     As the rating system is reliant on rental evidence to arrive at the rateable value then it seems essential for a ratepayer to have the evidence behind it provided up front by the VOA. This was the case in the 2010 Rating List at the appeal stage where the VOA provided the rental evidence it had used to assess the rateable value in the rating list.

8.7     A solution to this lack of transparency needs to be found so that VOA are legislated to provide the information in full and upfront.

8.8     As with many parts of government, the VOA has seen year on year cuts to its budget. This has led to a situation where there have had to be significant office closures and reduction in staff numbers.

8.9     For a tax that generates over £30b+ per annum, it cannot be right that VOA is finding it more and more difficult to administer and maintain the rating list. The VOA needs to be better funded so that the new CCA system can work as intended.

The economic justification for a property-based business tax:
- The impact of Business Rates on rental prices
- The impact of Business Rates on property prices
- Alternatives to property-based business taxes, such as the proposed digital services tax
- The problems associated with property-based business taxes
- The impact of changes (proposed and actual) of Business Rates on Local Authorities and Councils, and the High Street.

9.0     In the previous two sections we have already highlighted how business rates can and do impact rental and property prices in the market, however we feel the main issue is about the retailers and their ability to perform and adapt in the changing economy.

9.1     We have also provided comment and recommendations on the problems associated with the current business rates system, looked at impacts on the High Street and issues with billing authorities. Hence, we refer you to our earlier comments above.

9.2     Notwithstanding all the issues we have highlighted in the preceding sections, there continues to be an economic justification for a bricks and mortar/property-based tax on the occupation of property by businesses. Business rates provide certainty, can be forecast with a degree of accuracy and is hard to avoid.

9.3     It must be noted as mentioned earlier that as the market continues to change there is greater likelihood of a shift in how retailers negotiate rent with Landlords. The value of rent will become more and more dependent on the performance of the store and therefore sales. The implications of this need to be understood. 

9.4     Furthermore, as we are seeing less stores openings, businesses are not willing to operate in physical locations in the UK due to the tax burden and high costs to operate. Other countries do not face such barriers to entry for business and retailers and we are seeing many businesses choosing not to come to the UK

9.5     Finally, with regard to the recent announcement by The Chancellor in the Budget, a Digital Services Tax, designed to make tech giants earning vast revenues in the UK pay their fair share.

9.6     This is not quite the online tax that people had envisaged and argued for as a means to attempt to rebalance the tax burden between the High Street brick and mortar business ratepayers and online retailers who pay much less business rates. This new initiative is only designed to be a temporary solution and appears to be aimed at the likes of Google, Amazon and Facebook i.e. it is aimed at search engines, online marketplaces and social media firms.

9.7     The criteria to be subject to this tax will only apply to companies with a global revenue of at least £500m and be profitable. The first £25m will be tax free.

9.8     Any tax on online revenue may also affect the High Street in that many also have an online business as well. Hence any future adaptation of this Digital Services Tax or additional measures to tax online revenues must be designed to tax the revenues of online only businesses and not the online revenues of traditional businesses that have both a High Street presence and an online aspect to their business.

9.9     There are no easy solutions here but as we have already stated, business rates need fundamental reform in the way it works and the burden it now imposes on already struggling businesses and in particular for the struggling High Street businesses throughout the country. The Government should therefore consider freezing business rates at its current level and remove the annual uplifts in multiplier and let other taxes make up the shortfall in tax receipts. In addition, downward transition should also be removed.


10.0 Once these fundamental changes have been put in place, then other aspects of the rating system that we have highlighted and commented on, can be addressed. This will then allow this tax to be modernised and fit to meet and adapt to the challenges that business face in this ever-changing economic world. 

10.1 In conclusion, URW urges the Government to complete a more fundamental reform of the system which should review as a minimum the headline issues identified within this response to support and ensure the wellbeing of hundreds of thousands of small and large retail businesses, the three million people who are employed in the sector, as well as supporting investment from UK and international retailers and landlords who are dependent on a sustainable tax system.

 

Submitted April 2019

 

[1] (https://www.ft.com/content/1aa9eb98-ff3e-11e6-8d8e-a5e3738f9ae4)

[2] https://obr.uk/efo/economic-fiscal-outlook-march-2019 Table 4.2 page 73

 

[3] https://obr.uk/efo/economic-fiscal-outlook-march-2019 Table 4.3 page 76

[4] https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=2ahUKEwi92c31rZ3hAhVztHEKHXLuAmMQFjADegQIBhAB&url=https%3A%2F%2Fuk.fashionnetwork.com%2Fnews%2FWest-End-body-calls-for-UK-e-tail-sales-tax-to-create-level-playing-field%2C995346.html&usg=AOvVaw1EIDmcfO1BjbYQm_p3ax-n

[5] http://www.retailresearch.org/whosegonebust.php

[6] https://www.theguardian.com/business/2018/nov/09/embattled-high-street-retailers-call-for-help-as-closures-soar

[7] https://www.newwestend.com/wp-content/uploads/2018/10/Business-Rates-Booklet-FINAL-compressed.pdf

 

 

[8] www.hm-treasury.gov.uk PRB2008 Chapter 4.15

[9] ODPM, Non-domestic rates: guidance on rate reliefs for charities and other non-profit making

organisations, chapter 8,