Are business rates robbing billions of pounds from the economy?

Here is a snippet of business rates news to round off a year in which, for once, I have not been short of subject matter.

I saw a recent article that claimed reducing the burden of UK business rates could unlock thousands of jobs and boost new commercial property development by £1.75bn.

According to a new report by the British Property Federation, British Council of Shopping Centres and the British Council for Offices – no vested interest there then – since 2012, increases in business rates may have led to the economy missing out on as much as £670m a year in new developments.

It may also have resulted in as much as 6,000 fewer jobs among property occupiers. The report bases its assumptions on a calculation that over a period of two to three years, approximately 75% of any increase in business rates is transferred to landlords as occupiers push for lower rents.

This effectively limits the rents landlords are able to charge their tenants, ergo, business rates reduce the potential level of real estate investments landlords can make with the unwanted knock-on effect on the new commercial property development.

The lobbying group recommends that more frequent property revaluations would make the tax fairer by ensuring that rates are based on up-to-date market conditions. Revaluations are currently carried out every five years but this could well change as part of the Government’s current Business Rates’ review.

Ion Fletcher, Director of Policy (Finance) at the British Property Federation, said: “Business rates are often seen as a cost for occupiers – one that gets in the way of growing their businesses. This research shows that business rates also harm landlords and in particular they discourage new, economically valuable development.”

I can understand the logic of the argument to an extent but I am just a bit sceptical about the £1.75bn and 6,000 jobs figures quoted. I am sure there are some very fancy calculations being used by the report’s pencil pushers but who can truly say a landlord would be rushing out to invest in new sites with the wild abandon of an amateur Monopoly player – and all because we have business rate reviews a little more frequently?

On the up side, I suppose the report itself kept a good half a dozen consultants in work for a while so perhaps the figure of missing jobs should be revised down to nearer 5994?

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