Opinion: Why won't ministers listen on business rates?

Ministers know that this issue has been bubbling under the surface for years – Mary Portas raised it in her High Street Review, as did Bill Grimsey in his alternative review.

And the biggest names on the high street have been constantly slamming it year after year.

Yet, we should hardly be surprised – the Government has a habit of kicking problems into the long grass, putting its fingers in its ears and hoping for the best. Heathrow’s third runway and Hinkley Point spring to mind.

Usually when businesses and Government clash, there is a split in who to side with.

“The Government will claim it has made a difference – taking some of the smallest shops and offices out of the business rates system all together, and offering tax relief to others”

Yes, Apple are lablled as evil for allegedly not paying any tax, but then the Government should have done more to clamp down on tax avoidance and stop actively encouraging it.

But with business rates, the tax paid by all commercial premises like council tax on homes, the fault lies squarely at the feet of ministers.

Only business rates could unite the length and breadth of Fleet Street with virtually every newspaper of all hues launching their own campaigns on its overhaul.

Ignored pleas

Either minister’s ineptitude to comprehend the problems has got the better of them, or their bosses in the Treasury and Downing Street ignored their pleas to sort out a massive issue.

Then again, why try and sort out business rates – which have never made it onto the front of newspapers until recently – when it’s far easier to crack down on the more media-friendly issues like foreigners not paying their NHS bills?

A quick glance at any of the speeches made in the past by the likes of ex-Sainsbury’s boss Justin King, or Home Retail Group’s ex-chief Terry Duddy, would show that the high street considers business rates to be the biggest issue facing an industry that is the biggest private sector employer.

Many of them were screaming that George Osborne’s endless corporation tax cuts were meaningless, when business rates bills were nearly three times bigger – not to mention the ease with which companies can legally reduce their corporation tax bill by shipping profits offshore.

Government claims

The Government will claim it has made a difference – taking some of the smallest shops and offices out of the business rates system all together, and offering tax relief to others.

But this would be akin to a doctor telling a patient “we couldn’t do your heart bypass, but we did take out your appendix. No burst appendix for you!”

“Online retailers have far lower rates bills because the rent on a warehouse in the country is less than that on a high street”

The phrase “not fit for purpose” gets bandied around far too easily, but with business rates there simply can’t be any other description.

In arguably the most primitive of ways, the Valuation Office Agency (VOA) dispatch its army of staff to check out every commercial premises on the high street and use a complicated formula to calculate the rates bill, based on the rental valuation when it turns up.

This is done every five years, meaning, even if your rent bill falls during that time, your rates bill will remain artificially high, unless you appeal it, and hope for the best.

Conversely, if your rent rises, your rates bill stays low and you benefit – meaning, in essence, a struggling town that has seen stores close during that five year period and rents fall, is subsidising a thriving shopping street, where rents have soared over five years but rates have stayed flat.

Let that sink in.

Stockport’s struggling high street has been subsiding Bond Street for at least five years.

And, as if to make matters worse, the Government extended the revaluation period from five to seven years in 2015 – claiming it will put businesses at ease, knowing their bills won’t change.

In all my years covering business rates, not one single business ever told me they had called for the extension.

In fact, the extension is more likely to do with the sheer mountain of appeals the VOA were receiving because businesses in the Stockport’s of this world were trying to point out that their rents had fallen.

“Like council tax, there is simply no way around it”

It meant the VOA inspectors were so swamped, they were unlikely to ever get out the office to start the next round of valuations in time.

Add to that, the fact that online retailers have far lower rates bills because the rent on a warehouse in the country is less than that on a high street, and the disparity between online and high street only grows.

Delayed decisions

But, with this Government’s obsession with kicking the can down the road a bit further, it’s no wonder the revaluation was delayed by two years without any foresight of how hard it would hit when the bills finally rise this year by near universal double-digits.

So why hasn’t the Government done anything?

Simple. It’s all about the money. Business rates generate around £40bn a year for the Treasury and must be paid by all commercial premises.

Like council tax, there is simply no way around it. As a business you can’t move a building offshore, there are no obvious loopholes and if an independent business shuts down because of the high bills, a massive US giant will happily fill a loss-making slot on Regent Street to make up the shortfall.

Business rates are a cash cow the Government cannot afford to neglect, with ministers constantly saying they will not cut the overall bill, regardless of how much shouting the high street does.

Suggestions made have included basing the bills on the amount of energy each store uses.

Others have suggested a yearly revaluation to avoid such massive hikes every five (or seven) years through businesses submitting their rental bills to the VOA.

And some have said online retailers like Amazon and Ocado should pay a premium for their massive countryside warehouses.

Has the Government taken them up on any of the well-sourced suggestions? No.

So, while the UK is on the brink of leaving the EU and chancellor Philip Hammond keeps banging the drum that the UK is still open for business, why should anyone believe him when the biggest burden on businesses remains ignored and the UK continues to have the highest business rates in the developed world?