A perennial complaint by business is the effect of transitional relief on rates bills, although the committee has all but suggested major reform of this controversial feature of the system.
The committee rightly identified that business rates are supposed to be revenue neutral with annual adjustments for inflation, although the rate poundage has increased ahead of inflation from 34.8p in 1990 to 50.4p for most properties in 2019/20. The committee is quite right in holding HM Treasury to account and demanding an explanation as to whether or not this is deliberate government policy, especially as the secretary of state has the power to set the rate poundage at less than inflation if it would beneficial for business to do so.
The current transitional relief system has kept rate bills artificially high over a prolonged period.
There is no obligation for councils to help businesses understand reliefs.
Transitional relief should be redesigned to ensure businesses come out of phasing during rating list period
Government to work with councils to produce a single comprehensive guide on how reliefs are operated.
The purpose of a revaluation is to redistribute the burden of the tax to locations and classes of property whose rateable values (RVs) have changed since the last revaluation. Properties that endured significant increases in RV would have the corresponding increase in liability phased in over a number of years: the converse applies to properties that benefit from a decrease in RV.
In previous revaluation periods there was parity whereby, for example, a liability in upwards phasing would be capped to a set annual percentage and conversely, a liability in downwards phasing would be limited to the corresponding minus percentage. We are pleased the committee has identified that for the current 2017 rating list there was no such parity, with upwards phasing for most properties capped at double figures and negligible percentages for downwards phasing. The committee could have gone further by demanding HM Treasury confirms how much additional revenue it has generated as a result of the current arrangements.
As regards to rate demands that are produced by councils, a particular gripe of businesses with properties in many local authority areas is that that there is no consistency in the presentation of demands. And in recent years reliefs, such as Retail Rate Relief and Flooding Relief have been granted under the umbrella of discretionary relief that some councils grant automatically. The committee rightly identified that many such reliefs are subject to EC state aid rules that cap relief at €200,000 over a three year period, therefore those councils that automatically grant the relief could cause companies with large portfolios to breach the limit.
On the whole the committee’s recommendations are most welcome as far too many reliefs have been introduced under the guise of state aid in order to pacify ratepayers in the short term: symptomatic of a system that has not had proper care and attention, further exacerbated by the elongation of the 2010 rating list to seven years.
Businesses who want to see transitional relief scrapped will be disappointed as this requires fundamental legislative change, although the commitment to shorter revaluations – as long championed by BNPPRE – will go a long way to reducing large disproportionate liabilities, provided that the rate poundage is reduced to a more realistic level.