Aldous highlights impact of business rates on high streets

Waveney MP Peter Aldous this week called for the review of business rates which have hit high streets particularly hard and urged greater scrutiny of the Government’s decision to postpone the business rate revaluation.

In a Westminster Hall Debate, Mr Aldous emphasised the challenges that small businesses face in paying high business rates. In particular, it is the retail industry that pays 28% of business rates and has suffered most from this financial burden leading to the closure of many shops.

This Debate comes ahead of the Second Reading of the Growth and Infrastructure Bill next week which will include a provision to postpone the next business rates revaluation until 2017.

Mr Aldous’ concerns are as follows:-

  • The potential impact of the Government’s decision to postpone an increase from 2013 for the next 5 years fuels uncertainty since by and large property taxes require frequent revaluations to ensure acceptability and fairness. Postponing the review could lead to retailers facing incorrect and historical values for far longer than they should.
  • The annual increase in business rates aligned with the level of price index each September results in a compounded increase of 13.33%, which is unfair for businesses at a time when Council Tax has been frozen. This equates to £500 million increase to the retail sector’s rates bill. In order to ensure smoother business rates, which are not subjected to sharp fluctuations, one suggestion is that they could be based on the Consumer Price Index (CPI) and a rolling average for the whole year, instead of on the Retail Price Index (RPI) for one month.
  • When assessing the relative valuation of businesses, the Government fails to take into account the advantage of out of town shopping centres in terms of parking arrangements at the expense of shops in the town centre.

Mr Aldous said:

“I have witnessed the significant impact that high business rates have had in Lowestoft and believe that a review of the basis on which business rates are calculated is crucial to protecting the retail sector, creating jobs and ensuring investment in the High Street.”

FULL TEXT:

Peter Aldous (Waveney) (Con): It is a pleasure to serve under your chairmanship, Mr Caton. I am grateful to my hon. Friend the Member for Rochdale (Simon Danczuk) for securing this debate, and I welcome to the Front Bench my neighbour, the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis).

I welcome the debate, as this is an opportune time to review the future of business rates. Business rates are attractive to the Treasury and always have been, no matter which party has been in Government. They are easy to collect, difficult to avoid and highly productive, representing 5% of the UK’s tax bill. However, there is concern that the Treasury’s over-reliance on business rates is having unintended consequences. First, it is hitting high streets particularly hard, contributing to the large number of vacant units. Secondly, it is holding back economic growth, as the retail sector in particular is an important engine of the economy. Thirdly, it hits hard businesses that are property-reliant and must be in a specific high-value location. Many profitable internet-based businesses that are less property-intensive are not penalised to the same extent.

I am not an expert on the subject of business rates, but I do have an interest in the subject: before I came here, I was a chartered surveyor for 27 years. I dabbled occasionally in business rates, but it is a very specialist subject. I am interested in playing a small role in encouraging the renaissance in the high street, and I commend the Government for the work they have done in that respect. Lowestoft, in my constituency, is a Portas pilot, and the town team is setting about its work with relish. It is important that we in this place provide the framework through which its work can come to fruition.

I shall concentrate on the retail sector, which pays a significant portion of all business rates—more than a quarter, at 28%. On average, 14.6% of retail units in our high streets are vacant. That is due to a variety of factors: the growth in out-of-town retail parks, the rise of online shopping, falling consumer demand and high business rates. In some cases, the business rates are higher than the rent. Often, a retailer is interested in a particular unit; the rent looks okay, and he is working things out, and then suddenly he is hit with how much the rates will be. Mary Portas has said that high rates are a deterrent to investment in town centres and to retailers occupying shops.

To be fair to the Government, they recognise the vulnerability of small businesses to high rates. There is a small business rate relief scheme, a business rate deferral scheme and discretionary rate relief. The problem is that those schemes have had a limited impact and are of limited benefit to many small retailers. As was mentioned, the retail sector is the UK’s biggest private sector employer. It provides crucial first jobs to approximately 1 million 16 to 24-year-olds. There is real concern that another hike in rates will lead to fewer chances of work, less investment in the fabric of our town centres, which are so important to the country as a whole, and a more troubled high street.

Any decision to postpone the five-yearly revaluation review needs more consideration, scrutiny and consultation. I note that the British Chambers of Commerce was taken by surprise by that postponement. I hope that as the Growth and Infrastructure Bill progresses through Parliament, we have the opportunity to consider the matter in more detail. Any property tax requires frequent revaluations to ensure acceptability and fairness. The five-yearly reviews that have been in place for more than 20 years are well understood and provide a level of certainty. A break in that precedent creates an air of uncertainty—people will not know whether a review will take place.

It is also important to take into account that relative property values change over time. Relatively, rents in some sectors and locations will rise, while those in others will fall. It is important that the rating system has an in-built review system that reflects the dynamic nature of the property marketplace. We can then be sure that the tax burden is spread fairly—that those with the broadest shoulders pay the most, and those whose business may not be as profitable at a particular time pay less. Liz Peace, the chief executive of the British Property Federation, sums it up well:

“A revaluation should shift the burden from those who are suffering to those who are prospering.”

With the proposed freeze, there is concern that those in lucrative locations will benefit and those in hard-hit areas will suffer.

Mr Spencer: Will my hon. Friend mention the tax on empty properties? That causes me great concern. People who want to start a business need access to a small property. Landlords who find themselves having to pay enormous rates on empty properties are literally flattening them, so that they no longer have to pay. That removes the amount of start-up properties for those businesses.

Peter Aldous: I am grateful to my hon. Friend for raising that important issue. I was not going to raise it myself, but I take account of what he says. The tax on empty properties was introduced under the previous Government. I was still practising then, and there were concerns at that time. I have seen a number of units—they may not have been in the best condition, but they were available, often with a low rental value—demolished by landowners and landlords. Reducing the supply of accommodation can lead to an increase in rents for small businesses that are just getting started.

Mr Marcus Jones: On that subject, does my hon. Friend agree that empty property business rates are also an impediment to developers and investors who wish to invest in new build in our town centres, as they may not be able to fill them with tenants straight away? The measures introduced by the previous Labour Government are leading to a situation that is stifling investment in our town centres, rather than encouraging it.

Peter Aldous: Yes, I agree. Investing in major town centre refurbishment schemes is expensive and challenging. Such schemes take a long time—often a number of property cycles. We therefore need to provide every incentive and encouragement for investors and developers to invest in town centres; otherwise, they take the easy option of going for out-of-town locations, which exacerbates the vicious circle of draining life and vitality out of the town centre.

I take note of the Valuation Office Agency’s research, which shows that 800,000 premises will see a real-terms rise in rates, while only 300,000 will see their bills fall. Having said that, I am also mindful of the views of Gerald Eve, which I think is recognised as the leading private practice firm in the specialist field of rates. It disputes the VOA’s contention and has carried out its own research, which reaches a different conclusion. We also need to bear in mind that at the time of the current valuation, April 2008, the market was at its peak. There is concern that postponing the review will lead to retailers facing incorrect and historical values for far longer than they should.

My hon. Friend the Member for Rochdale mentioned the backlog of appeals. One reason for postponing the revaluation is to address, and not add to, the backlog. We need to take urgent action to clear the backlog, and I would be interested to hear from the Minister on what proposals there may be. I hasten to add that I have no continuing involvement with any private sector firms, but we need to consider whether this is something that the private sector can do.

Let me turn to the annual increase in business rates. We need to review the mechanism by which that takes place—the increase in line with the retail prices index every September. If, next April, we keep to this September’s 2.6% rate, business rates will have gone up in the past three years by a compound rate of interest of 13.33%. That will mean that £500 million is added to the retail sector’s rates bill. At a time when council tax is frozen, Britain’s shopkeepers are carrying too heavy a burden on their shoulders.

I should like to mention three issues in closing. First, I hope that the Government, as soon as they are able, publish the data on which they have based their decision for postponement. We need to scrutinise this and have a consultation to look at it more closely. Secondly, we need to review the RPI link. Property is a declining proportion of the total economy, yet we are taking more out of it. I do not think that the golden goose has many more eggs left to lay. Thirdly, we need to look closely at the formula by which business rates are calculated. In particular, does the formula accurately reflect the rental value of out-of-town shop and retail park units? In the high street and town centre, people have to pay for a council car park, whereas car parking for out-of-town retailers is right on their doorstep and free. That is a real draw for shoppers, but it is not accurately reflected in the rates formula. I am grateful to hon. Members for listening to me.

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