It seems a long time ago that the government decided to put the country (and economy) in lockdown. As we try to emerge from the ashes, with still only glimpses of “normality”, how have the government’s measures in terms of grants and business rates holidays been faring?
Grants
The government has now confirmed that the Small Business Grants Fund (SBGF) and the Retail, Hospitality and Leisure Grants Fund (RHLGF) – set up on 23 March 2020 and allocated to local authorities to pay businesses suffering from the impact of Covid-19 – should close by 28 August 2020, as will the £617m Discretionary Grant Fund announced in May, supposedly to plug the gap for those businesses that were struggling to access the initial funds.
The grants have provided some much-needed relief to many small businesses and retailers, which is commendable. According to government figures, as of 14 August 2020 some £10.88bn of the £12.33bn originally allocated in the grant schemes has been paid out.
However, it’s not been all plain sailing – as the grants come to an end, a sizeable £1.45bn remains undistributed, primarily because of state aid rules which stopped some businesses with multiple properties, particularly large retailers, from accessing all the grants. But also, because we have a bizarre scenario where some local authorities still have too much grant to pay out, while in others the grant allocations were simply not big enough.
This imbalance was caused by basing the grants on the rating system, with initial grants granted to those companies in receipt of small business rates relief, with a rateable value of under £15,000 – or in terms of the retail grants, a RV of less than £51,000. However, because RV is based on rents, many London businesses were not eligible given the higher level of rents in London compared to elsewhere in the country.
Now there is a race against time for those businesses that would be eligible for relief to claim. Colliers is therefore petitioning that the government, rather than returning the £1.45bn unused grant monies to the Department for Business, Energy and Industrial Strategy, instead redistributes it to support those businesses that have missed out on funds so far.
Business rates holidays
In March, the government gave a business rates holiday to some sectors of the market, principally retail, leisure and hospitality, for a 12-month period, regardless of size or profitability. While this was much-needed by many and applauded, the policy has still left many businesses out in the cold.
Key sectors, such as the office and industrial sectors, did not receive a rates holiday, nor did telecoms, manufacturing and financial services, which are also key to the UK economy and have struggled in these difficult times. The tumbleweed blowing through the business districts of most of our major cities illustrates the point.
Given many offices were not in use for three months during lockdown, and now are only just becoming partly occupied, many businesses have claimed empty rates relief on the grounds that their offices were closed. A handful of local authorities have shown discretion and granted reliefs in some cases, but the majority have refused.
At Colliers we have urged the government to instruct local authorities to show flexibility, offer support to businesses to help them back on their feet and grant empty rates relief for this period. In Northern Ireland, all sectors were given a three-month lockdown business rates holiday. It would be sensible to mirror the scheme this side of the Irish Sea.
Even for those sectors – such as retail and hospitality – which have benefited from the one-year business rates holiday, it is still not plain sailing ahead. Despite the support, there have been numerous casualties in these sectors, even as lockdown has begun to lift, with many household names entering administration. Other well-known brands are permanently shutting stores and restaurants and planning to lay off currently furloughed staff.
The government needs to decide now what it is going to do next year soon – whether it extends the current business rates holiday for another six or even 12 months from April 2021, or whether it gives 50% rates relief. These are important factors that will influence the decisions made by retailers, as they consider their strategy ahead. The government must communicate its proposals as soon as possible, or decisions to stay open or close will have been made and the horse will well and truly have bolted.
Appeals
Latest figures released (on 6 August) on the “check, challenge, appeal” business rates appeals system illustrate the intense pressure on the Valuation Office Agency to deal with appeals based on the “material change of circumstance” (MCC) as a result of Covid-19. The system was already overstretched before the pandemic and lockdown struck.
In England, in the three months to 30 June 2020, around 144,910 new checks were registered, which is nearly the same as the three-year figure announced three months ago (1 April 2017-31 March 2020), when 158,910 checks were registered. The new figures effectively double the total number of checks registered, up to 303,820.
This massive increase in the numbers of started appeals is due to an increasing number of companies claiming an MCC as a result of the impact of Covid-19. Businesses in all sectors are arguing that rental values have plummeted and, as their RV should mirror rental values, these need to be adjusted downwards significantly.
Colliers is concerned the backlog of appeals could snarl the system, with many businesses going under before evidence is assessed. We urge for a collaborative approach between the VOA, ratepayers and their agents as soon as possible to agree sensible and fair reductions across the board to those sectors most impacted. This will be essential if businesses are to plan and hopefully work through this crisis, especially as these new figures do not, of course, take into account the number of new checks registered in July, where figures are also expected to be high.
Revaluation
In July the government announced it was postponing the business rates revaluation for a further two years. The next revaluation in England will instead take effect on 1 April 2023 and “so that it better reflects the impact of Covid-19, it will be based on property values as of 1 April 2021″.
While we understand why the government has taken this approach, given the impact of Covid-19 on values, under the latest proposals, rate bills will still be calculated according to the 2017 list and 2015 values until 2023 – a six-year list. Such a long list is in nobody’s interest and only intensifies the need for urgent business rates reform. We propose the following:
- The values currently in the rating list should be reduced because of the effect of Covid-19 on the back of tens of thousands of MCC appeals.
- A revaluation date of 1 April 2021 will still see values significantly affected by Covid-19 and, as a result, we will see a significant reduction in RVs. What the government will therefore potentially be faced with is either a significant reduction in the annual tax take of £26bn, or, if it wishes to maintain £26bn of receipts, it will either have to significantly increase the multiplier from the current level of 51p or introduce another calamitous transitional relief scheme.
- The alternative could be that a properly resourced VOA could carry out a revaluation in 12 months and still introduce a new list on 1 April 2022. We believe this would be better than such a delayed list.
Reform
The government has now at last published its call for evidence in respect of the fundamental review of the business rates system in England trailed in the 2020 Spring Budget. This will be welcome. Last year the Treasury Select Committee heard evidence from a number of businesses and professionals within the industry and came out with a string of recommendations that made some very damning conclusions on the current system, particularly about the multiplier, the appeals system and resources at the VOA.
The government is seeking evidence from any interested parties, including ratepayers, agents and local authorities in respect of:
- reliefs and the multipliers;
- changes in respect of revaluation, transitional relief, plant and machinery, and investment;
- changes to the administration of the system, including appeals, the accuracy of the rating lists and the billing process; and
- views on alternative property and non-property-based taxes.
Responses in respect of reliefs and multipliers are requested by 18 September with a view to informing an interim report in the autumn. Responses on the other areas on which evidence is sought are required by 31 October, ahead of the conclusion of the review in spring 2021.
Our view is that the recommendations of the Treasury Select Committee published in late 2019 – to reduce the multiplier, which has grown out of proportion, tackle the appeal system and resource the VOA properly – are fundamental. We also need to rebalance the disproportionate business rates tax bill that falls on physical retailers.
The elephant in the room is indeed the 51p multiplier – this needs to be reduced across the board. Any shortfall can and should be made up from a digital/delivery tax.
Grading the government
Last time I gave the government a B+ for the measures it was introducing, with hopes this could be inflated to an A*. However, like many examination boards, I don’t think this uplift is currently justified. That said, the government has a real chance of top marks if it gets business rates reform right. We must wait with bated breath to see its proposals.
John Webber is head of business rates at Colliers International
