As I sit at my desk (thankfully a very rare occasion), opening the mail, in a little office above our Church Inn pub, here in the leafy village of Mobberley (sounds idyllic), with a coffee in hand looking out at the rain… I notice we have had a ‘request for information’ form for one of our pubs from the non-domestic rating people, with the usual time limit, the usual threat of the £100 fine or more if you don’t complete the form within 56 days of the date on the letter.
My heart always sinks when I get these forms. We are not alone of course… every pub in the land gets them. But what makes the heart sink is that you are having to declare a much-improved sales/turnover picture at the pub in question and you know, despite our team’s great efforts and endeavour to improve turnover, we will be punished by the rating valuers for doing so.
Such is the complete unfairness of the system. It is simply a ‘success tax’. I have, of course, already written in a previous opinion piece for The MA about what our rates go towards, or not, as the case maybe, so I don’t want to repeat myself too much here.
I read last week, with extremely ‘lukewarm’ excitement, the Treasury is almost certainly reviewing the business rating system in its Autumn Budget announcements but the big question is how? What can we expect?
We have operated our pub company Cheshire Cat for some 17 years now and in this time there have been no real changes to the rating process.
We simply pick up a closed down pub, make it great, employ loads of people, pay loads more VAT, duty, NI, corporation tax, pay more rent where relevant (as inflation goes up) see all the other costs rise, work really hard, make something award winning and, while you are doing all these great things, your business rates are going up pro-rata! Be warned the ‘Farmer’s God’! Yes, it is like Butch & the Sundance Kid!
We shouldn’t be that surprised the ‘rating process’ hasn’t changed. Domestic rates, otherwise known as council tax, haven’t been updated since 1991. Yep, 34 years of houses in Hull (no offence) being rated higher in some cases, than houses in salubrious parts of London (no offence).
Massive priority
Surely this Government and many before it must know there is a massive opportunity to actually review the ‘domestic rating system’ based on house values and post codes. It is easy and yet when you mention it to MPs (and I have done so on more than one occasion) they look back at me like I’ve asked them to sit on a large rusty nail (I wish!).
Sorting out an antiquated domestic ratings system is a massive priority for the Government and in so doing, will help so many people, while at the same time, will help offset business rates by levelling everything out.
Only during the pandemic were business rates payments stopped to help businesses get through the worst. Of course, one had to ‘qualify’ for rates reductions after things returned to semi-normal.
We are currently lucky enough to be enjoying a 40% discount on rates as I write this. However, this is down from the Conservative Government’s generous 75% discount. Nevertheless, a lot of businesses are being helped with the discount and not just in hospitality.
What happens when the Treasury, as part of its review do away with the 40% discount? Mark my words, I think they will drop it like a hot plate of chips. So we will have to endure a 40% rise back to what our rates used to be. Then they say they will come in and look at the ‘multiplier’.
What is this magical multiplier? Well, a quick explanation… when the valuation people set your rateable value through looking at your turnover and other things when you fill out the form mentioned above. They will come up with a figure, of let’s say, £100,000. They then take this amount and ‘multiply’ it by the agreed ‘multiplier’, which is like a percentage, currently sitting at 0.555. This means your rates are charged to you at £100,000 multiplied by 0.555 which gives you £55,500 to pay for the year.
This ‘multiplier has gone up from 0.493 back in 2019 (pre-covid)’ when your rates would therefore have been £49,300. So, in this case, a sizeable increase. What you probably don’t know is the multiplier used to be 0.348 back in 1991. So, it’s a 59.5% increase since 1991. You are now beginning to realise where I am going with this. If the Treasury drops the 40% discount, it would have to take the multiplier down to 0.396 to match what we currently pay. It simply isn’t going to do this.
Interesting proposal
The key is that we all need to know what the new proposed multiplier is going to be now? Our industry bodies such as the BBA (sorry still not worthy of the ‘P’) and Hospitality UK need to be asking these questions now and pressurising Government to ‘show us the goods’, in other words, what is the proposed multiplier on the table?
I read recently too that Greene King wants the Government to consider changing the business rating system to possibly being based on profit as opposed to turnover. This is an interesting proposal and very advantageous for a large company. As an ‘industry veteran’ (I know – this is a polite way of saying I’m past it!) I have worked for PLCs that are able to lessen the bottom line of each pub in their vast empires, at the drop of a ‘creative accountants’ hat!
I will not name names but I have worked for PLCs that charge each pub a rent despite all the pubs being freeholds. I have worked for companies who put a retro on everything and charge the pubs the higher amounts while making their ‘purchasing department’ one of their biggest profit centres in their company.
None of this is illegal but it does lower the real profit of each pub. If business rates were based on pub profits, all head offices would be ‘service charged’ to each pub in order to lower profits and therefore the respective rates payments – simple. Of course, another thing gained by this ‘cunning plan’ is that all tenants and lessees of these pub companies would have to declare profit and therefore face potentially higher rent reviews on that basis. So thanks for your thoughts, but no thanks.
What we need is a proposal that all of hospitality should be on a level playing field before any Treasury reviews. So is it turnover for all? Or is it square meterage for all?
Then we can move on to the ‘magical multiplier’. Let the bullets fly!
