Business Rates

The end of the double edged sword of transitional relief?

I’m currently formulating my response to the Government’s latest business rates consultation, this time on the transitional relief scheme to be implemented for the April 2023 revaluation.

Transitional relief is designed to phase in changes in liability so that an occupier facing a large increase in rateable value doesn’t immediately bear the full brunt of an overnight increase in liability. Sounds good I hear you say, and why would anyone want to do away with that? Whilst transitional relief limits increases, it also limits decreases and according to the treasury, should be fiscally neutral. So downward transition pays for upward transition.

If we look at projections for the new rating list, industrial/warehouse up across the country, retail almost universally down and offices very dependent on age, specification and location. The huge slump in office values predicted by some because of covid, has failed to materialize.

Putting that into context, some areas of the country could see RVs on industrial properties double, whereas retail properties in the same area would see a reduction of more than half. If you apply the previous transitional relief mechanism to that scenario, it could take years for warehouse occupiers to see their bills increase to the right level, while at the same time, high street units remain empty as rates liability is kept artificially high because of downward transition.

This just can’t be the right answer.

Part of the problem with business rates is that bills are almost incomprehensible. There are 350+ councils in England & Wales, who all have their own formats and a different way of showing the calculation of transitional relief. I’d go as far as to say that most of the property profession don’t understand transitional relief and even if they get the concept, the calculations themselves are shrouded in mystery. I was made to learn transitional relief calculations long-hand by my old friend and mentor Andy Duguid back in the mists of time, so I can understand how people struggle with it.

My initial reaction was that we should scrap transitional relief altogether; the purpose of the revaluation is to make rateable values more closely reflect rental values and the planned move to annual revaluations would see RV’s tracking rents more closely. The problem is that the last revaluation was in 2017, so we have six years of rental growth and some very significant and fundamental market changes. If TR was scrapped then properties with big RV increases would see a big rates liability increase, on top of utilities, staff, rent etc. Not good and with next to no time to prepare.

So on reflection, some upward transition would be a good thing. It absolutely shouldn’t be fiscally neutral or funded by downward transition as the high street and other retail properties needs an immediate shift in values to have any chance of recovery.

The consultation states “It is too early to know the result of the 2023 revaluation. However, the government is required by law to introduce at each revaluation transitional arrangements which we have previously used to support businesses to adjust to their new bills”.

Ok, so the 2023 revaluation isn’t complete but the VOA are sufficiently advanced in the preparation to provide a broad sample of values to allow a modelling exercise to be undertaken by government. Creating a TR scheme without knowledge of the shift in values is impossible.

Data modelling and the sheer volume of data collected from local councils has come a long way since the last revaluation in 2017. It is possible to model the impact of a TR scheme that limited large upward increases and spread the cost across all other properties for a finite period of time, say the first year of the new list. This wouldn’t necessarily result in the UBR multiplier increasing further above the £0.512p in the pound currently payable.

If the overall pool of RV across all properties increases, for the overall revenue generated from business rates to remain stable, the multiplier can drop but still pay for some assistance to those facing big increases.

I’m still writing my response and would be interested to hear your views. Whether there will be anyone left at the government to read my response remains to be seen.

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