A few years back, the government of the day spotted a banana skin ahead. A routine reassessment of rateable values due in 2015 would lead to some businesses paying a lot more in business rates. With London and the South East beginning to boom again after the banking crisis, that would mean a huge increase in business taxes in Tory heartlands. So, ministers kicked the revaluation into touch until after the 2015 general election. There was no point in having a row with business leaders just as electors queued at the polling booths. And, as the government pleaded at the time, the country was still struggling to get out of recession.
This was at best confused thinking. At the worst, it was cowardice. Whatever the motive, the business rates revaluation was delayed for a couple of years. It is now upon us. For Ludlow, it is becoming the biggest media story in town because the government is perilously close to permanently damaging the retail economy of towns like Ludlow.
Town Councillor Glen Ginger and myself have been plugging away at this story for a while. In January, I produced a detailed set of estimates of increases in business rates in Ludlow from 1 April 2017 through to 2021.
In recent weeks, the rise in Ludlow business rates has been covered by The Times in two articles and one letter. BBC Midlands Today filmed in several locations around the town yesterday. (See the broadcast.)
The main thread of the story is that rateable values here are going up by 37%, compared to a rise of around 10% nationally. Most of the rise in Ludlow is in the retail sector. In part, this is due to the historic character of our town.
I am the first to say that there is good news in the government’s package. Nearly 400 businesses in Ludlow will pay no rates at all over the next five years. That’s all the small cafes, hairdressers, butchers and many others. Business rate relief will provide a total saving of £1.3 million for the smallest businesses in Ludlow over the next five years.
But there are 200 local businesses, mostly in the retail sector that will be hit hard by the business rate increases. They include some of the best known shops and pubs in Ludlow town centre, which will be facing business rate rises of up to 150% over the next five years.
Tim Vaughan, who owns The Queens with Jane, told The Times on Saturday:
“They are killing the golden goose. We may be small but there are a lot of us and we’re employing a lot of people. The British economy needs small businesses like ours. I’m not exaggerating when I say it will put many of us out of business, without a doubt.”
He added that the business rate hike for The Queens is “the equivalent of asking me to employ someone living on the living wage for 35 hours a week – and paying them to stay at home.”
We are pretty much a unique place. Four in five of our town centre retailers are independents, not national chains. That makes our town quite different from town centres dominated by shopping centres and standard sized shopping units. We also have many shops in prime locations that might be in side streets in other towns – places like Silver Pear, Castle Books, Valentyne Dawes Gallery and Broad Bean, to mention just a few.
The standard valuation methodology doesn’t seem to work fairly in towns like ours. An analysis by Glen Ginger has shown that the rateable value per square metre varies dramatically, to the extent it looks random to any reasonable observer. And, as he points out, no one from the Valuation Office Agency seems to have visited Ludlow. The revaluation has been a remote, robotic exercise.
This makes it difficult to succeed in appealing any valuation. The Valuation Officer simply refers to the rule book and confirms the valuation. The next stage of an appeal is before the Valuation Tribunal for England (VTE). But the government says that from 1 April no appeal will succeed if the valuation is within “reasonable professional judgment”. So far ‘reasonable’ has not been defined, but media reports suggest that if a valuation is within 15% of its true value, it won’t be overturned. To put this in perspective, a 15% reduction in rateable value will save a business like The Queens around £11,000 in business rates over the next five years.
Big businesses with multiple outlets will employ the best lawyers to ensure that they win at the tribunal. But most small businesses will lack expertise and confidence. Faced with a fee of £300 to launch an appeal, many are likely to leave the valuation unchallenged.
Any taxation system needs to be equitable. Ludlow’s Tesco, which draws in £11 million a year more than the company average for its Corve Street store, is not facing an increase in rateable value. Next year, it will pay £12,000 less in business rates. That’s because the big retailers have pleaded poverty and got a good deal on rateable values. Small businesses don’t have the same lobbying power.
Ludlow Chamber of Commerce has been conducting a survey of retailers in the town. The survey is still in progress but initial results show that three-quarters of independent retailers think the business rates hike will damage their business. One in ten fear they will shut their doors because of the increase. That’s frightening for the future of our town centre.
The government needs to wake up quickly to the impact this revaluation will have on town centres and market towns across the country. Ministers are lauding that most of the smaller businesses have been taken out of business rates all together. That’s great. But they have forgotten a golden rule of good government – not to penalise or inhibit success. Ministers seem completely unaware that the rates hike will permanently damage town centres like ours.
So, what needs to be done?
The government must commit to a thorough overhaul of the business rate system or to scrapping it altogether. The foundation of any new system should be based on evidence – as far as I can see it has not conducted an impact assessment of the current revaluation. Ministers will need to build a degree of consensus within the business community. That will be hard because what works for factories may not work for high streets. Until a new business tax system is in place, the government should cap annual increases for businesses with a rateable value of up to £50,000 at 5%.
Retailing is a vital part of the nation’s economy. Ministers damage it at their peril. They are perilously close to permanently damaging the retail economy of towns like Ludlow.