Report reveals benefits of cut
Cut in business rates ‘would unlock £1.75bn’
Reducing the burden of business rates could unlock almost 4,000 jobs and £1.75 billion of development over the next five years – more than the combined development value of the Shard (pictured), Walkie Talkie and Cheesegrater, some of the biggest projects in London.
A report launched today by the British Property Federation, British Council of Shopping Centres and British Council for Offices has revealed that over a period of two to three years, approximately three quarters of any increase in business rates is transferred to landlords as occupiers push for lower rents.
In other words, business rates limit the rents that landlord are able to charge to their occupiers. This reduces the potential level of new real estate investments that they can make and reduces the amount of new commercial property development. However, not all of the cost of rising rates is passed on to landlords, with 25% being borne by occupiers.
The report shows that over the past three years, increases in business rates may have led to the economy missing out on as much as £670m of new development, and in addition may have resulted in as many as 6,000 fewer jobs among occupiers of property.
The organisations have further calculated that over the next five years projected increases in business rates could lead to approximately £1.75bn of new commercial property development being foregone. Rising rates will also reduce occupiers’ profits by approximately £585m, which could affect as many as 4,000 jobs.
Ahead of the outcome of the UK Government’s review of business rates, which is expected to be unveiled in next year’s Budget, the organisations have called for a reduction in the burden of business rates and introduction of more frequent revaluations.
Similar calls are being made in Scotland where five of the key business organisations have demanded a similar review.
Revaluations are currently carried out every five years (although a two-year delay for this cycle was introduced in 2012, resulting in seven years between revaluations) which the report says is not often enough to pick up changes in wider economic conditions, such as the recent recession. More frequent revaluations, it says, would make the tax fairer by ensuring that business rates bills are based on up to date market conditions.
The report says the need for reform is particularly acute for regional markets such as Manchester, Newcastle and Birmingham, where the report found the relationship between business rates and rents is stronger than in London. The fact that rents outside of London are more likely to be affected by the rising cost of business rates means that more development is likely to be forgone outside the capital –which is at odds with the Government’s desire to encourage growth across the country.
The converse of this is that the regions may be in a better position than London to encourage new commercial property development under the government’s plans to devolve business rates. A strong relationship between business rates and rents suggests that rents (and therefore new development) will respond positively to reductions in business rates.