Tens of thousands of London rate-paying businesses are braced for sharply bigger bills with the release of new property valuations on Friday, in a change that heralds the most significant redistribution of the business rates burden in recent years.
Official analysis published in advance shows the steepest increases will be felt by London retailers, whose business rates will rise by an average of 14 per cent before taking account of “transitional relief” that will phase in the changes.
But for some West End retailers and office occupiers on the fringes of the City, in places such as Shoreditch, bills will more than double as a result of the long-delayed revaluation of properties in England and Wales. Other rapidly gentrifying areas of London will also be hard hit, with experts forecasting a 120 per cent increase in the levy for retailers in parts of Brixton.
From April, business rates will be based on 2015 rental values — which are the data being released on Friday — rather than on the pre-recession values of 2008, as they are at present. The changes will be revenue neutral, redistributing the £28bn-a-year rates burden in line with the changing economic fortunes of different sectors and regions. Business rates in England and Wales are among the highest in the industrialised world.
John Webber, head of rating at the commercial property group Colliers International, said that even taking the relief into account, the 2017 revaluation would bring about the largest changes to the levy in a generation. “There will be some enormous increases in central London, particularly in retail, and significant reductions in areas that have not fared as well [economically],” he said.
He forecast that occupiers of big properties in London would be shocked by the government’s proposals to limit the first-year increases to a 45 per cent rise, much higher than the cap last time round. To pay for this transitional relief the government is proposing capping reductions at 4.1 per cent in the first year — although the cuts will be quicker for smaller properties.
The decision to delay the revaluation by two years — which prevented the changes from taking effect just before the last general election — had exacerbated its impact, Mr Webber added. As business rates are the third-largest outgoing for most businesses after rent and salaries, the changes could have a severe impact on those groups operating on tight margins and who are unprepared for a sharp rates increase.
The data out on Friday are also expected to show that plummeting rents in some northern towns have left some retailers paying at least twice as much in business rates as they should be. But although this means they are due for some much-needed cuts in rates, the transitional relief is likely to delay this, just as it could cushion the blow for companies facing increases.
Jerry Schurder, head of business rates at Gerald Eve, the property consultancy, said that, as a result, the revaluation would “not be the saviour” that occupants of high streets in the Midlands and the north were expecting.
On Friday, hundreds of thousands of businesses in England and Wales should be able to find their properties’ draft rateable value online. The figures will be the Valuation Office’s official estimate of the open-market rental values of April 2015, based on information provided by occupiers or by site visits. Every local authority will take the rateable value of each property and use a “multiplier” — set by the UK and Welsh governments — to calculate the business rates bill.
A summary of the changes released by the Valuation Office on Wednesday showed that more regions of England saw a rise than a fall in rateable values. But adjustments to the multiplier will mean that only London, where business rates will rise 11 per cent on average, will see an overall increase. Other regions will see a drop of between 2 and 11 per cent.
Some businesses outside London are also likely to be heavily affected. Office occupiers in Reading, Croydon, Milton Keynes, Cambridge, Guildford and Nottingham are expected to face increases of more than 35 per cent, according to JLL, the property advisers. At the other end of the scale, office occupiers in the north-east, Yorkshire and the Humber will see business rates fall by an average of 21 per cent, according to the government’s summary of the changes.
James Thompson, head of business rates at Deloitte real estate, said that utility and telecoms companies were also set to be hit hard because their rateable values were inversely linked to the cost of their capital. Leonie Greene of the Solar Trade Association said it feared ”colossal” sixfold increases in the bills for businesses with solar panel roofs if the government did not take action.
Many businesses in England are also angered by proposed changes to the rates appeals system, which would mean that a tribunal would only be able to order a reduction if a bill was considered inaccurate by being outside “the bounds of reasonable professional judgment”.
The government has tried to limit the impact of business rates by announcing extra concessions in this year’s Budget. The changes are expected to mean that 600,000 small businesses, which are the occupiers of a third of all properties, will pay no business rates at all from 2017. Overall, following the revaluation, almost three out of every four businesses would see their bills fall or stay the same, it said.
Even so, property experts expect the changes to have big implications for the property market, hitting owners as well as occupiers.
Ian Fletcher, director of finance at the British Property Federation, said some areas would see “huge hikes in business rates, which will not only put a strain on businesses, but it will ultimately also affect landlords, whose rents will likely be compromised as a result”.