What do the coming business rates changes mean for cities?

This briefing looks into the impact of business rates changes on different cities

There has been a lot of attention drawn to the forthcoming changes to business rates, much of it covering those businesses that will be hardest hit by the changes. While some businesses are facing large increases, this isn’t reflective of the picture overall. This briefing sets out what April’s changes to rateable values – the value of buildings used to calculate business rates – will mean for the business rates paid in cities up and down the country.

The Valuations Office Agency (VOA) undertakes periodic revaluations of all commercial properties in England and Wales so that the business rates levied on a property reflect the rental value of it. The last revaluation was implemented in 2010, and the current revaluation will come into effect from 1 April 2017.

  1. Most cities will see a fall in their average business rates bills
  2. Central London is making an ever greater contribution to business rates
  3. Changes to business rates exemptions mean that many small businesses will no longer have to pay any business rates
  4. But it also means large businesses will bear ever more of the burden
  5. And some cities will be very reliant on a handful of properties

Implications

  • The revaluation of commercial properties is welcome because it eases the tax burden on business in struggling cities, many of which have been overpaying in recent years.
  • The issue therefore is not the revaluation itself, but that it does not happen often enough.
  • The legal requirement that the overall amount of business rates must remain fixed is also flawed.
  • Both of these issues hurt London businesses in particular.
  • The falls in business rates in many cities is good news for businesses, but not for the cities themselves.

Our messages for the Chancellor as he prepares to deliver the Budget

  • Firstly, he should resist calls to delay or scrap the revaluation, while still ensuring that there is some transitional relief.
  • Secondly, this means that he should introduce more frequent revaluations on a yearly or bi-annual basis, to make the system more accurate and timely, reduce volatility, and to maintain the legitimacy of the tax.
  • Thirdly, the Government should replace the fixed yield with a fixed rate.