The tables were turned again on major retailers this weekend when a coalition of local councils made a tough proposal to the Government.
The tables were turned again on major retailers this weekend. The industry at the heart of the campaign to reform the business rates system found itself at the sharp end of a proposal from a coalition of local councils.
Some 20 authorities led by Derby City Council, revealed the submission of a plan to the Government calling for a business rates hike for the largest supermarkets and retail outlets, with the revenue then used to fund community improvements.
Properties with an annual rateable value (used to calculate rates liability) of £500,000 or more would be subject to a rates increase of 8.5% and the additional tax would be retained by councils to fund local economic development, services, facilities and social and environmental improvements.
Listening to the Derby City Council leader, councillor Ranjit Banwait, introduce the initiative on the Today programme on Saturday, it appears that the idea is to compensate communities and high streets for the ‘damage’ done by large out-of-town retailers and to retain some of the spending typically extracted from communities.
Like the current business rates system, this proposal creates winners and losers. The small retailer and the high street potentially stand to gain from new investment and additional deterrents to out-of-town retail development. Meanwhile large store operators – in particular the big four supermarkets – would suffer at a time when margins are under increasing pressure, overheads are increasing, and the online challenge continues.
“It seems somewhat radical to penalise major retailers retrospectively for developing large stores”
David Ford, CVS
But within the current business rates system, winners and losers are determined through a system of market-driven property values and changes in relative rental prices. Under Derby’s alternative, the Government is making the choice.
It seems somewhat radical to penalise major retailers retrospectively for developing large stores over the past few decades. Moreover, the measure would be applied universally, not just targeting supermarkets but large shopping centres, leisure complexes, furniture and hardware stores and other businesses that add vitality and create jobs in communities. The Department for Communities and Local Government looks likely to throw out the proposal.
Overhaul of rates
From the retail side of this debate, the British Retail Consortium, Bill Grimsey and others are calling for an overhaul of the business rates system and have proposed a number of creative ideas for calculating rates bills. Yet Derby’s proposal reminds us of three important benefits of a property-based tax.
First, business rates theoretically relate to the physical demands that commercial property places on local communities. Like council tax, it’s businesses’ contribution to the local infrastructure, transport and services from which they benefit.
Second, calls for increasing local retention and control of business rates are growing ever louder.
“Rates provide dependable, predictable and easily collectable income for Government, making it a tricky tax to reform”
David Ford, CVS
The Government introduced the business rates retention scheme in 2013 to allow local authorities to keep half of rates revenues. The Local Government Association and other groups continue to lobby for more local autonomy and, in early July, Labour’s Lord Adonis published a report proposing 100% retention by new ‘combined authorities’. Local retention of rates is increasingly seen as a key tool for incentivising growth.
Finally, rates provide dependable, predictable and easily collectable income for Government, making it a tricky tax to reform.
As we approach party conference and manifesto season, local retention looks likely to be a key theme. Meanwhile, recent Government consultations show few signs of decoupling business rates from property.
The next step should be to refine and improve the current system to make it more transparent, accessible and responsive to local economic circumstances.
This is possible and there is common ground here – Government, local authorities, and retail and non-retail ratepayers should work together so improvements can be made.
- David Ford is regional director at business rates specialist CVS
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