Chancellor Philip Hammond yesterday afternoon announced a significant but temporary reduction in business rates for smaller retail businesses.
This is good news for market towns like Ludlow. For the next two years, the Chancellor’s statement will reduce crippling business rate bills by around £500,000 over the next two years in Ludlow. We are a town with more than 70 independent retailers. That money will help local businesses survive. It will be pumped back into Ludlow’s economy.
The news of a tax on digital retailers is also good news. Our high streets are not in competition with the internet giants but they should not be left at a disadvantage because of the business rate burden they face.
Businesses in Ludlow, particularly retail businesses, received a shock at the beginning of 2017, when new rateable values were announced.[1] In Ludlow, they soared by 37%. Though some businesses were successful in getting their rates bills reduced, the rates burden still increased dramatically.
Shops on high streets are closing across the country. One of reasons is our shift to online shopping and the growth of out of town retail parks. Another is the level of business rates.
The chancellor attempted to tackle the rates issue yesterday. He said that retail businesses with a rateable value of under £51,000 will get a reduction of one third in their business rates. He said this will benefit up to 90% of retail properties but that is just spin. Many small retail businesses are already exempt from paying rates. This change benefits independent retailers and franchises, but not larger chains where the relief would fall foul of EU state aid rules.
I’ve been having a look at how this affects Ludlow.[2]
We have 260 businesses involved in some form of retailing, from bakers and antique dealers, to hairdressers and banks. Currently, half of these are exempt from paying business rates as they have a rateable value of £12,000 or lower (142 businesses). Thirty-six properties with a rateable value between £12,001 and £18,000 get a limited discount.
With the one third discount announced yesterday, only 29 retail businesses will pay full business rates for the two years from next April. Seventy-seven will have a one-third reduction in business rates.
Estimated business rate relief after 2018 budget
Overall, Ludlow retailers will pay around £260,000 less in business rates from next April.[3] Those that will still pay full business rates include Tesco and the Co-op. Some independent retailers will also pay full rates, including Bodenhams, the Church Inn and the Charlton Arms.
Among the 53 locally owned businesses set for one-third relief are The Queens, Homecare, Farmers, Poyners, Rickards, Castle Bookshop and Price the Bakers.
This is good news but the relief only lasts for two years. That could leave us with a ticking time bomb primed to explode in the middle of 2021 when rateable values will shoot up by a third for nearly a third of businesses in Ludlow. That’s also the year that there will be another reassessment of rateable values.
Philip Hammond is also planning to introduce a digital services tax in 2020. Forecast to raise a very modest £440 million a year, it is targeted at the internet giants such as Amazon, Google and Facebook.
The chancellor announced a £675 million fund for improvements to town centre infrastructure, including to increase access to high streets, reduce congestion, support redevelopment around high streets and enable housing and new workspaces to be created. Whether small towns like Ludlow will benefit from this cash pot is yet to be seen. I am not holding my breath but perhaps we could put forward a countywide bid.
There was some bad news for towns like Ludlow in the budget. The government is to consult on a new permitted development right to allow conversion of shops to houses or offices without planning permission. That poses a danger for high streets like ours. We should keep retail properties for retail use. Conversion to a house or office should only happen if there is no prospect of future retail use, not because someone has the money the buy and convert the property. I will oppose this for market towns. I am sure the government will push it through regardless as it is obsessed with permitted development rights. In which case, I will be pressing Shropshire Council to issue an Article 4 direction to remove permitted development rights for Ludlow.
Notes
[1]. Rateable values are set by the Valuation Agency using complex and sometimes obscure formulas. The business rate payable is determined by applying a multiplier. For 2018/19, the multiplier is 49.3 pence and the small business rate multiplier is 48.0 pence. A small business is one with a rateable value of under £51,000. So, a business with a rateable value of £60,000, will pay £29,580 this year before any transitional relief. Next April, the multipliers increase by 2.4% in line with the Consumer Price Index.
[2]. Ludlow here is defined as Ludlow and Ludford parishes.
[3]. The exact sum won’t be known until the government publishes the detailed regulations on how the one third relief affects transitional relief and the precise list of types of businesses eligible. It has already said that estate agents and professional services will not qualify for relief. Also, some chain stores like Boots could be barred from relief due to EU state aid rules. I am also uncertain about the status of Ludlow Market. This has a rateable value of exactly £51,000. Normally rates relief applies to rateable value “£X,000 and lower”. The chancellor said: “At the next revaluation in 2021, rateable values will adjust to reflect changes in rental values. But I want to help retail businesses now. So for the next two years, up to that Revaluation, for all retailers in England with a rateable value of £51,000 or less, I will cut their business rates bill by one third.” But the Red Book says: “the government is cutting bills by one-third for retail properties with a rateable value below £51,000.” Make of that conflict what you will but it won’t be resolved until the regulations are published.
Talk about Robin Hood……business rates are just incredible, it is amazing that local businesses survive at all given the amount they pay.
We seem to be a nation that just accepts the concept of further and further taxation, business rates surely should reflect the return of services provided similar to domestic rates.
So basically companies are paying business rates, taxes from their profits and also VAT of 20% on their goods.
Imagine how cheap the goods actually are in reality and how much the consumer is being ripped off by government.
Surely fair taxation is on profit with a basic rate to pay for amenities used.
This shocks me……
This may be good news for small businesses but it may be bad news for Shropshire council, whose income is going to be further reduced as the government has decreed that Local authorities can keep all the business rates in their area as central funding disappears.
I think we also need to be careful about looking at taxes as the government stealing our money. Taxes are the way in which we all contribute to those public goods – roads, street lights, defence, police that everyone needs, and those services – education, health, welfare, that most of us need some of the time. “Fair” taxation is a difficult concept, and I would agree that business rates are a really blunt instrument. The basic principle should be that we receive according to our need and pay according to our ability to do so. I tend to think a local income tax would be more in line with that principle as well as being easier to administer; and it would indeed amount to a tax on profit for a business because profit is your real income. But as long as we all see tax as something the government steals from us we will see a moral virtue in trying to reduce our own tax bill either by playing the system legally or fiddling it. There is an estimated £20billion to recover from ‘legal’ tax avoidance, but perhaps £120billion to recover from illegal behaviour that covers everything from the major scam to th small job done cash in hand. In the end, we can’t expect to have services and provision that someone else pays for.