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Were the Government wrong to postpone the business rates revaluation?By: Rod Edwards, Director, Eddisons

Rod Edwards, Director of Eddisons rating department
The recent growth and infrastructure bill contained details of the Government’s plan to postpone the 2015 rating revaluation in England until 2017, which is expected to receive Royal assent in the next couple of months. Following this announcement the Scottish Government announced plans to defer their revaluation until 2017.

Since 1 April 1990, regular Rating Revaluations have been held on a five yearly basis using rental values two years prior. The current 2010 Rating Revaluation is based on 2008 rental values. The announcement by the Government states:

Business rates are the third biggest outgoing for local firms after rent and staff costs. This decision will avoid local firms and local shops facing unexpected hikes in their business rate bills over the next five years. As business rates are linked to inflation, there will be no real terms increase in rates over this period. This reform will provide certainty for businesses to plan and invest, supporting local economic growth.

The Government is committed to maintaining up to date rate bills through regular five yearly revaluations in England, which will resume after 2017, once the economy has had a chance to recover fully from the financial and fiscal crisis this Government inherited from the last Administration.

Already, the Government’s decision has come under heavy criticism from a consortium of groups, including the Association of Convenience Stores, the British Property Federation and the British Council of Shopping Centres.
From our analysis of rental value trends from 2008 to the present time, figures suggest that had the 2015 Rating Revaluation gone ahead as planned, the overall effect would have been that the total rateable value pool would have gone down.

With the Government requiring revenue from business rates to remain level in real terms, a reduction in the total rateable value pool would have meant that the rate in the pound multiplier would have needed to increase by a significant factor.

A significant increase at times of economic uncertainty would be seen as politically unacceptable. It is also likely that a reduction in overall business rate revenue would have required a cut in other spending or increases in taxation elsewhere, which again might be seen as politically unacceptable at the time of the next general election.

This is a completely unexpected, badly thought out move by Government, which will delay any hope of rateable values being realigned with lower 2013 rental values, as opposed to the current rateable values, which are based on pre-crash peak 2008 rents. Business rate liabilities will now continue to increase in line with RPI through to the 2016/17 rate year with liability predicted to increase by 2.65 per cent from 1 April 2013.

The postponement of the 2015 Rating Revaluation will be very unwelcome to the majority of businesses. Just when a faint light of rateable value re-adjustment could be seen at the end of a very long tunnel, the Government has extended the length and with it a higher rates burden for another two painful years. The Government has suggested that this reform will provide certainty, but the only certainty we can see is that rates liability for most businesses will continue to increase.

The winners from this revaluation delay will be prime retail centres and London offices whose rental values have now returned to around 2008 levels, the losers will be those where rental value has decreased significantly since 2008 such as struggling retail centres, high streets and industrial areas.

About the author

Rod Edwards is the director of Eddisons rating department in London, joining the company in October 2012 from Drivers Jonas. Outside of work he enjoys keeping fit and spending time with his family. 

Features January 2013

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