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London companies to bear brunt of business rates overhaul

Saheli October 2, 2016 Business Comments Off on London companies to bear brunt of business rates overhaul

The pedestrian crossing at Oxford Circus in London

An overhaul of the business rates system is to dramatically increase the tax paid by businesses in central London and cut the bills for struggling northern towns.

Shops on Regent Street in London face an 87% increase in their business rates bill next year, while northern towns such as Bolton and Blackpool will enjoy a drop of up to 56%. The stark divergence in tax reflects the changes in Britain’s economy since 2008, when the last official valuation of the country’s property – on which business rates are based – took place.

According to government estimates, London as a whole will register an 11% increase in its tax bill while everywhere else will experience a drop, including 10% in the north-west and the West Midlands, and 11% in the north-west.

Sadiq Khan, the mayor of London, said the tax increases are a “real kick in the teeth” for the capital, but the Federation of Small Businesses said many firms across the country “will be getting some relief from years of overpayment”.

However, BT said telephone and broadband prices could increase as a result of a £565m hike in its taxes, while hospitals, universities and landmarks such as the Tower of London could also lose out.

Business rates are a tax that firms pay on their commercial property. They were the Treasury’s sixth biggest source of income in the last year, bringing in £27.8bn. Retailers claim the levy places a damaging burden on the high street.

The tax is calculated as a proportion of the value of a commercial building. The overall tax take for the Treasury is supposed to remain flat in real terms, but the burden for paying the tax shifts between businesses depending on the shape of the economy, which is measured through the revaluation of property.

The principles behind business rates were laid out in the 1601 Poor Relief Act, which charged property owners a tax to help support the poor.

Britain’s property is supposed to be revalued by the Valuation Office Agency every five years, but the government controversially delayed the last revaluation by two years, claiming it would create uncertainty among businesses. This has made the changes in business rates payments announced by the government on Friday particularly dramatic.

The Institute for Fiscal Studies said the revaluation showed the government’s reliance on London. David Phillips, economist at the IFS, said: “Growing differences in property prices reflect broader evidence of a growing divergence in economic performance over the last few years, and it will contribute to the ongoing trend of the UK government becoming more and more dependent on revenue from London to fund services across the whole – which may pose difficulties if more revenue sources are devolved to the local level.”

The Department for Communities and Local Government has revealed plans to soften the blow of the tax hikes when they come into force next April by limiting the increase in the first year to 45%. However, this will be funded by introducing a cap of as little as 4.1% for businesses preparing for a drop in their rates bill, meaning they will have to wait for the full benefits.

BT will face one of the biggest tax increases. According to research by Deloitte Real Estate its tax bill will increase from £149m to £714m by April 2017, a 450% increase. BT said the tax increase was excessive and would challenge it, saying: “It is highly likely that an increase of this size would lead to higher prices for consumers and businesses.”

Other business and sites set for large increases in their business rates bill include the O2 in London, which is set for a 142% rise, the Tower of London, which will see a 90% rise, and the Bank of England, which is due for a 61% uplift.

According to Colliers International, the property agent, universities and hospitals will also be hit. The Queen Elizabeth hospital in Birmingham faces a 64% increase while the University of Bangor in Wales will take a 33% hike.

Jerry Schurder, head of business rates at property specialists Gerald Eve, said: “The new rateable values highlight the huge disparities between locations that have weathered the effects of the recession and those that have struggled to reverse the decline, but also underline what a mistake it was to postpone the revaluation by two years.

“That the most struggling companies in the hardest-hit locations will never see the full benefit of their reduced assessments makes a mockery of the government’s approach to revaluations. What is the point of revaluing properties if retailers are unable to see the upside? It is yet another example of confused thinking on the part of the government and indicative of an attitude that asks retailers to ‘pay up and shut up’.”


[Source:-The Guardian]

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