Viewpoint - 19/11/2012

Rating Revaluation postponement: interview with Brandon Lewis MP

In one of his first detailed statements on the 2015 revaluation postponement, Brandon Lewis MP, Minister for Local Government, responds to our questions and explains why a postponement until 2017 makes sense for the UK economy.

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Our Q&A

1) The government has announced the postponement of the 2015 revaluation till 2017. What benefits will businesses derive from this decision?

Independent initial estimates published by the Valuation Office Agency show this decision will avoid 800,000 local firms and local shops facing unexpected hikes in their business rate bills over the next five years. As business rates will remain linked to inflation, there will be no real-terms increase in rates over this period.

2) Which business sectors or locations were likely to have experienced increased rate liability if the 2015 revaluation had gone ahead as originally planned?

The Valuation Office Agency’s independent analysis has been published in full. Some sectors which would have faced big hikes included petrol stations (+28% tax paid), the self-catering industry such as caravan parks (+29% tax paid), hotels (+6% tax paid), theatres (+25% tax paid), and pubs (+11% tax paid). The retail sector overall would have seen a tax rise of 1% above inflation, and food retail and convenience stores in particular would have faced significant tax increases.

3) Businesses appear keen to move towards more regular revaluations in order to keep pace with shifts in the economy. Is this an option that the government is considering for the future?

The Government is committed to maintaining up-to-date rates 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 Labour years.
4) How will the postponement of the 2015 revaluation reduce volatility for businesses?
By preventing any real-terms increases over the next five years, businesses will be able to undertake long term financial planning and investment knowing that their business rates aren't likely to change dramatically. The confidence this will give businesses will benefit the economy as a whole.

The transitional relief scheme which accompanies each revaluation does an important job in allowing ratepayers time to adjust to their new rates bill.  But it does not remove the uncertainty which a revaluation creates, which for 2015 would have been exceptional.  And nor does the transitional relief scheme stop increases.

However, we do not think that such immense volatility at this point in time would be in the wider public interest, particularly when we want to ensure the economy is growing.

The engines of economic growth aren’t found in the corridors of Whitehall but in the foundries of great local British companies. The best thing Government can do to help such businesses is to provide them with a stable economic environment. This is why we want to protect local firms from soaring tax bills.

5) Does the Minister accept that retaining pre-recession rateable values for longer will mitigate against future speculative property development?

The last revaluation was based on April 2008 valuations and rents set at the height of Labour's unsustainable property boom. Since then, the economy and property market have faced exceptional changes. A revaluation at this point would be likely to result in sharp changes to business-rate bills in many parts of the country and in many sectors.

Rents have fallen since that property boom. Some people assume falling business rents somehow equal falling business rates: everyone’s a winner. That might happen in a perfect world, but not in the complex citadel of local government finance. In fact the VOA's independent initial analysis shows than 800,000 premises would have faced real term increases at 2015.

6) Does the government empathise with the widely-held view that, by combining occupier rate liability based upon pre-recession rental evidence with 100% rates attributable to empty commercial property, regeneration and growth are not being encouraged?

Postponing the revaluation will provide five years of stability for rate bills and support growth. Support for empty property business rates measures are currently unaffordable. However, while we have no immediate plans for reform, we are most definitely keeping this matter under review.

The Government recognises that business rates are a big burden for small retailers in particular, which is why we extended small business rate relief, made it easier to claim that rate relief, and introduced new powers for councils to introduce local business rate discounts.

Our analysis

Many business ratepayers find themselves in an unprecedented situation. Rate liability, a valuation-based tax on commercial property occupation, is soaring in the midst of a deep recession. The effect has been to significantly increase operating costs at a time when many businesses are being pushed towards administration and closure. The knock-on effect in the commercial property sector has resulted in large increases in vacant property, the near-collapse of rents and property valuations which bear no relation to today’s reality.

The government’s decision earlier this month to postpone the 2015 revaluationhas therefore sparked outrage. Many ratepayers correctly infer that the delay will mean that today’s high valuations are to continue uncorrected for a further two years.

By responding in detail to the concerns of the industry (view the VOA’s high level estimates of non-domestic rental and rating assessment movements for England), the Minister has acted correctly. His office’s substantiation of the decision to postpone, though heavily assumption-based, makes mathematical sense: a larger number of businesses will experience increases in rate liability after a 2015 revaluation than will benefit from reductions.

Yet, there is something inherently unfair about moving the goalposts, even in the interests of stability and predictability. Markets are inherently dynamic, and the point of a general revaluation is to reallocate the overall rates yield in line with the economic landscape. The postponement effectively bucks the market. Those suffering the pain of high valuation since 2008 will suffer for longer and those in relative comfort will reap the benefits. It is an odd situation for a pro-business, Conservative-led coalition government to find itself in.

This article is part of the autumn 2012 edition of Rating in Brief.

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