Business rates revaluations: the real reasons for postponement

For a Government that claims to be pro-business, it certainly behaves in a most extraordinary way, judging by its postponement of the planned 2015 rating revaluation. The effect of this will condemn most businesses to a further two years of excessive rates bills.

Business rates are currently based on rental values and sales turnover in April 2008, a time when business prospects were much better for most, despite the aftermath of the smoking ban, than they are today.

In today’s very different economic climate, with rental values and turnover in many locations lower than five years ago, and with profit margins squeezed more and more, as costs continue to rise at a faster rate than sales, businesses are being taxed based on a level of trade and profitability in a boom while experiencing the trading conditions of a double-dip recession.

The 2015 revaluation offered UK plc the hope that business rates would be updated to reflect current trading conditions and this anticipated respite has been delayed in a move that will undoubtedly contribute to more business failures.

The Government has, of course, tried to spin this as a positive move for businesses, claiming that it removes uncertainty over the effects of the revaluation and allows them to plan for the future in the knowledge that their rates bills won’t increase by more than the RPI (Retail Prices Index). In reality, businesses would far prefer the prospect of lower bills even if they could not predict the precise amount.

So what is the real reason for postponement?

It’s not, as one might have anticipated, a measure to raise revenue because that is not what happens at revaluations. Their purpose is to bring the tax burden up-to-date based on modern rental values and to redistribute liability in a manner that reflects differential rental growth across the country. Revaluations do not raise additional revenue because the UBR (Uniform Business Rate), the tax rate, is reset at revaluations to ensure fiscal neutrality.

I suspect that there are a number of real reasons that contributed to the decision to postpone, including the following:

■ The 2015 revaluation would have been based on rental values in April 2013 and, given the likely paucity of open market lettings at that time, the Valuation Office Agency (VOA) would have had limited evidence to rely upon, leaving its valuations susceptible to challenge, thus risking revenue loss through successful appeals.

■ Following resource cutbacks at the VOA, staff are struggling to cope with the many outstanding appeals against the 2010 revaluation. Postponing the 2015 revaluation allows a catch-up before the next round of appeals set in.

■ The likelihood is that total rateable values would have fallen at the 2015 revaluation, reflecting rental decline, poorer profit margins and lack of sales growth since 2008 and, as a consequence of the requirement for fiscal neutrality, the UBR would have had to rise markedly from 47p in the £ next year to well over 50p.

■ This tax rate of above 50% would have come into effect on 1 April 2015, just five weeks before the next planned General Election.

The other political dimension is that those parts of the country and the economy that have fared relatively better throughout the recession would have borne the brunt of the revaluation through increased rates liabilities, offsetting the decreases elsewhere.

Some in London and the more prosperous parts of the south thus benefit from the revaluation postponement, but there are far more businesses in the rest of the country that will be justifiably aggrieved at having been abandoned by the Government. The north/south debate will rage with greater intensity.