Thousands of firms hit after year of rates misery
The April 1 rates overhaul saw 1.9 million commercial properties in England revalued and rates rise for 500,000 businesses.
Retailers, hospitals, pubs and schools were among those dealt a hammer blow this year when the first business rates revaluation for seven years left many facing crippling bill hikes.
Branded “absurd” and “not fit for purpose”, the April 1 rates overhaul saw 1.9 million properties in England revalued and rates rise for 500,000 businesses.
Firms in London – retailers and pubs in particular – were some of the hardest hit due to soaring property values in the capital since the last time business rates were reviewed in 2010.
Some small firms saw eye-watering increases in their rates – the commercial equivalent of council tax – and have been forced to pay while waiting to appeal.
It has come at a painful time for many as companies have also seen staff costs soar after the introduction of the national living wage, while the Brexit-hit pound has pushed up the price of imported goods, energy and services.
Experts said the revaluation exposed how unfair and illogical the system is, with some firms receiving rate hikes while their neighbours enjoyed tax cuts.
In one of the more high profile cases, the Press Association revealed last year that former chancellor George Osborne’s family wallpaper firm enjoyed a cut of more than £3,400 a year for its showroom in London’s swanky King’s Road, while shops on the same street suffered increases of 50% or more.
Osborne & Little’s rates cut highlighted the apparent inequality of the system at a micro level, but the revaluation also brought to the fore more major issues with rates inequity.
It exposed how state schools and NHS hospitals have been left paying full rates while their private counterparts can enjoy 80% charitable relief.
For cash-strapped NHS sites, this has meant that while they must fork out £1.83 million in rates over the next five years, private hospitals in England and Wales are enjoying a £52 million tax break.
Taxpayers have likewise been giving private schools a £522 million subsidy on their business rates bills thanks to their controversial charitable status, including some of the most elite schools in the country such as Eton College.
In Scotland, which has a separate rates system, it was announced in December that private schools will no longer be eligible for business rates charitable relief from 2020-21 in what was seen as a landmark decision.
There could also be change on the horizon for hospitals in England as a raft of NHS trusts are set to begin court action challenging the Government to demand relief on a par with private hospitals.
Another high profile court case in 2017 saw some of Britain’s biggest supermarkets join forces to appeal against a controversial tax ruling that could spell the end of free “hole in the wall” cash machines attached to shops.
They are appealing against a legal ruling in April to uphold a decision in 2013 that cash machines built into the front of a shop or petrol station should have a separate business rates bill – a move costing the industry nearly half a billion pounds.
Meanwhile, tens of thousands of firms wishing to challenge April’s significant bill hikes have had their efforts frustrated by a new complex appeals system and a myriad of IT glitches.
The most recent figures showed that just 5,650 firms across England have begun appeals since April, with only 400 making it through to the next stage of the process and no formal appeals lodged.
This compares with close to 20,000 appeals lodged a month after the last revaluation seven years ago.
Chancellor Philip Hammond has sought to offer embattled firms some concessions, announcing a £300 million relief fund in March’s Spring Budget for councils to dole out, as well as a £1,000 discount for small pubs, which has since been extended to 2019.
In the main autumn Budget, he also brought forward plans to switch the inflation measure used to calculate annual increases in a £2.3 billion reprieve and revealed plans to reduce the period between revaluations to every three years.
But he was condemned for not doing enough to support struggling firms, with many calling for a rates freeze and others demanding a full overhaul of the system.
Alex Probyn, president of Altus Group, Britain’s biggest ratings advisory, said 2018 should see “normality” resume after 2017’s upheaval, but warned much still needs to be done to make the system fairer.
He called for the Government to be more “creative”, with rates exemptions for new plant and machinery, and predicted “firm proposals” on taxation for online retailers.
He said: “Some retailers will have to absorb very large increases in their bills, which could spiral by a further 32% plus 3% inflation next year.
“Those bills could be more affordable if the playing field with their online competitors was levelled.
“It’s not just about retail. Ratepaying hoteliers have a source of unfair competition in Airbnb hosts, who lack the same overheads.”
Experts are also predicting a wave of appeals in 2018 as firms get through the new ‘check, challenge and appeal’ system, while pressure is unlikely to ease up on the Government to re-think its entire approach after a year of unprecedented rates misery.