With input from members surveyed in September, which formed part of our Private Rented Sector and Housing Market monthly reports, Propertymark sought views on the current business rates system, which contributed to our key recommendations.
Business rate relief for retail premises
Before the Coronavirus pandemic, despite many estate and letting agents being small businesses occupying high street premises, they were considered to be ‘offices’ as opposed to ‘retail’ businesses and were ineligible for the existing and proposed business rates cuts.
After lobbying the UK Government in March 2020, Propertymark welcomed the decision that agency offices that closed because of COVID-19 restrictions will be exempt from business rates until the end of 2021.
85 per cent of members surveyed agreed that estate and letting agents should continue to receive the rates relieve available to retail premises, not only to promote growth within the sector but also because property agents have long been the bedrock of the local high street. Propertymark recommends extending the relief to estate and letting agent offices as it is important to retain and promote growth not only of the sector but in many towns and cities across the country.
Reliability and judgement
Many online agencies who face lower costs are squeezing agents with a physical presence on the high street out of the market. Should estate and letting agents leave the high street, not only will communities be faced with more empty premises and lack of services, but tenants who rely on agents to manage their properties will lose vital relationships. Furthermore, the opportunity for face to face contact facilitates agents in making robust judgments around suspicious activity for the purposes of the money laundering regulations.
More consideration on revaluation periods and their impact on the effectiveness of reliefs and exemptions was called for. The current five-yearly revaluation creates uncertainty in future rental returns, as it is very difficult to calculate future business rates costs.
The current system also requires businesses in relative decline to pay inflated business rates for too long and prosperous businesses to pay too little. To rectify this, we recommend more frequent revaluations, for example, every year, which could help alleviate uncertainty and ensure business rates are calculated fairly.
Introduction of nationally led reliefs model via online sales tax
National online sales tax should be introduced as an alternative to business rates relief, which would remove the burden from overstretched local authorities and create a level playing field for all businesses. This will prevent the problem of ‘unfairness’ of some sectors being granted relief whilst others are not.
Currently, there are different business rate reliefs available depending on which local authority businesses are based within, whereas an online sales tax could unify all areas so that businesses know where they stand.
More time for limited reliefs
Business rates cuts are often ‘capitalised’ into higher rents over time, benefitting commercial landlords rather than ratepayers. As a result, the burden falls on occupiers, imposing an extra cost and denting their ability to invest and employ more staff. Short term, time-limited reliefs benefit occupiers as they will not be capitalised into rents as much as long term reliefs. Therefore, the UK Government should consider more time-limited reliefs to avoid this capitalisation into rent.
Business rates should be set by central Government
The setting of reliefs should be part of a more collaborative and transparent system in which ratepayers and taxpayers are seen as part of the process, working alongside local authorities with Central Government overseeing the process. This should go hand-in-hand with more revaluations to ensure that rates are kept fair and accurate.
The Government should look to other successful national models, such as the one used in the Netherlands. Through annual revaluations, the Netherlands has been able to reduce administration costs by 28 per cent per year, which generates a Government saving of around £56 million a year.
The call for evidence phase completed on 31 October 2020 and HM Treasury is expected to make its final conclusions on the review by Spring 2021.
Our call for evidence response
We responded to the UK Government’s review of business rates stating the need to include the continuation of rates relief for retail premises and for the introduction of an online sales tax.