It’s not often that I agree with the Guardian, but their series of stories on the unfairness of the UK’s system of business rates is doing a great job of bringing the issue to the public’s attention and putting pressure on the government.
Business rates, for those who don’t know are one of two property taxes that exist in the United Kingdom and is payable on all commercial properties (the other property tax is council tax payable on all domestic properties). Each property is assigned a rateable value based on what it is likely to rent for. Annual rates payable are then calculated as a percentage of that value (between 46% and 49%). Every few years (normally five, but in this case seven) the rateable value of commercial properties are recalculated on a square metre basis. Properties are divided into zones based on their perceived “value”. Needless to say, each square metre of floor space in the front half of a shop on the high street will be considered more valuable than a warehouse in an industrial area, or a staff toilet. The value is calculate partly on what sorts of business are located nearby and what rents they are likely to be paying. If you’re on a street with a lot of shops belonging to large national chains your own rateable value will be driven up dramatically.
As any businessman can tell you, the distinguishing characteristic of commercial landlords is their rapaciousness, so commercial rents increase with depressing regularity which means that with every property revaluation, rateable values increase, sometimes dramatically. And unlike corporation or income tax, the amount of tax payable doesn’t vary based on profitability. It’s just a steady drain on a business that needs to be paid every month. And unlike Council Tax on domestic buildings, business rates don’t buy you any services such as waste collection. Businesses are expected to pay for that themselves.
The system is broken, but don’t expect the government to fix it. It goes against their policy of supporting their biggest donors – mega corporations and mega property developers. Simon Jenkins, in a magnificent screed yesterday hit the nail squarely on the head:
What was daft was to heap the entire burden of seven years of non-revaluation on to what would inevitably be small and poor as well as big and rich shops, pubs and workplaces. In inner London, the valuation cap on H-band houses means that homeowners would pay no extra council tax, however far above £1m their houses might rise in value. In Belgravia, a tiny flat pays the same council tax as a palatial mansion.
Shops and pubs are therefore seeing their taxes soar, in part because neighbouring houses have been rising in value yet incurring no extra tax. It is not the rich who are paying these new business rates, it is those who service them.
The business rate penalises the one feature of local geography that emphatically aids community cohesion, the high street. It taxes inner-city shops, and thus benefits out-of-town supermarkets and online warehouses. It taxes places where people can walk, and thus encourages shopping by car. It taxes town centre jobs in favour of commuter sprawl and rural colonisation. A business tax is a mansion tax on the Old Curiosity Shop – whose rates in Lincoln’s Inn are rising from £7,225 to £12,005. It makes the poll tax look intellectually sophisticated.
If Treasury officials ever dirtied their shoes in pubs or high streets, they would have seen this fiasco coming a mile off. Since Thatcher crushed the discretion out of local democracy in the mid-1980s, the Treasury’s grip on the public sector has tightened and yet grown more insensitive. The failure to stop the poll tax was its Waterloo. Since then, its avid centralism has supported ministers in their assaults on council tax and postponed revaluation. Britain’s total dominance of central over local sources of revenue is shared nowhere else in Europe.
My local publican, an independent, has to find another £11,000 in rates next year, in effect an £11,000 impost on his income. He might have to close, as have roughly a third of the shops in my high street in the past two years. Shops are struggling under a blitzkrieg of local hypermarkets and squadrons of Ocado and Tesco home delivery vans.
This is not “market forces” at work. It is policy at work. It is policy that, in my district, allows the development of acres of empty luxury flats, starving shops of custom. It is policy that promotes out-of-town retail. It is policy that allows changes of use from commercial to residential, sending land values soaring. The free market is not sent by God. It is what happens when ministers and councillors go home to bed.
Governments are fond of spouting off bullshit about how “small business is the backbone of the economy”, but they can’t be bothered to create a fair property tax system for small and medium employers. The degree of pain that many business will be suffering from the current revaluation is sufficient that that even our normally somnolent parliamentarians have been roused to action. As much as I criticize the legacy media, I have to give credit to the Guardian for putting this issue before the public to some effect. Why yesterday retailers in our town were blessed with a visit from a staffer from the office of our normally invisible MP asking for feedback on the changes to business rates and how it affected them. I doubt anything will come of it. The government is making soothing noises about assistance for businesses adversely affected by the revaluation, but it’s unlikely to be more than the bare minimum of temporary relief sufficient to buy them time until the issue to fall out of the public consciousness. Still, hope springs eternal, and perhaps if sufficient pressure is put on the parasitical wankers in Westminster, we might eventually see some reforms to the system.
Nah – who am I kidding. Money talks in this country. Ever was and always will be.