Rates revaluation could finish off high street, warn small businesses

UK business owners already pay more than any other country in Europe, but are facing huge hikes following a two-year delay in reassessment

The situation faced by author Jeanette Winterson, who is planning to close her delicatessen cafe Verde in London because of escalating business rates, will be familiar to small business owners around the country who are facing their own hikes.

Business rates are based on the value of commercial property and, according to analysis by CVS Business Rent & Rates Specialists, shops in 791 villages, towns and cities in England and Wales will see their rateable values rise from 1 April. Overall, rateable values between the last property assessment in 2010 (based on 2008 figures) and today, have risen by £654m.

The coastal town of Southwold in Suffolk is top of the list. The town’s 79 shops (which excludes department stores, supermarkets and superstores) are facing a rateable value rise of 152%. Rates are rising by 136% for retailers in Blaenavon in south-east Wales, and Port Isaac in north Cornwall is expecting average rises of 121%. In contrast, rateable values in Merthyr Tydfil near the Brecon Beacons National Park, are due to decrease by 43% from April and Yeovil’s 313 shops will see a drop of almost 25%.

Southwold resident Rebecca Bishop has run The Two Magpies bakery on the town’s high street for four years. She says while her rent has remained stable over that time, she is now surrounded by chains, which has pushed the shop’s valuation up from £9,200 to £25,500 per year. It also makes her ineligible for small business rate relief, despite the threshold having been increased. Chancellor Philip Hammond revealed in the Autumn budget that properties that fall under £12,000 will pay no business rates from 1 April, with tapered relief to £15,000. There is also likely to be some transitional relief, spread over the next five years.

“It’s a massive increase for me,” Bishop says. “Because I’m above the threshold, I’m now reclassified as a medium-sized business. I’ve still got the same amount of staff, I’ve got the same turnover, I’ve got the same footprint, nothing has changed except [the property value].

“We are the victims of our own success in Southwold,” she adds. “We’re known as this high street of lovely independent shops that are now being squeezed [out] … Shops aren’t just shops so they can be there to make a profit, they’re what makes the local community. The government need to do a fundamental review into how the rates are calculated.”

Fellow resident Irena Sibrijns, who runs a 30-year-old gallery and shop for a cooperative of artists nearby, has started a petition online, calling for the government to reconsider rate rises. A dramatic review of the business rates system was promised by the then chief secretary to the Treasury, Danny Alexander, in 2015. But it fell short of the revolution promised. In a summary of the responses [pdf] collected from the review, the majority were in favour of retaining a property-based tax. Of the 269 parties consulted, 38% were local authorities or their representatives. Under the current rules, local authorities retain 50% of the value of business rates, with the other half going to the Treasury. Only 15% of the respondents to the review were small businesses. The Federation of Small Businesses (FSB), which replied on behalf of its thousands of members, only counted as one response.

Rateable values are based on a site’s potential rental value per square metre, which considers the rents paid by surrounding businesses, rather than those currently paid by the occupier. These are then multiplied by the shop’s size, and by a central government multiplier, that is set annually (this was 48p for small businesses [pdf] in 2015) to calculate the bill owed by occupiers of the shop. Rateable values are also added together for those retailers that have multiple stores, pushing even more entrepreneurs above the threshold for small business relief.

According to the FSB, 7% of small firms pay more in business rates than they do in rent. For others, business rates are the third highest cost for any entrepreneur, after rent and staff costs. UK entrepreneurs pay more in business rates than any other country in Europe, and more than France and Germany combined.

While business rates are usually reassessed every five years, the government delayed the most recent review for two years. At the time, it was claimed this would protect businesses from volatility, although many believe it would have brought some welcome relief to small businesses in areas where property values have fallen. “The result of not having revalued business rates over such a long, and economically volatile, period has left the landscape of UK business rates at its most complex phase yet,” says a report by real estate lender Colliers International [pdf]. John Webber, head of rating at the firm believed doomed retailer BHS lost £60m in its last two years because rates were not revised on time.

The most recent figures suggest 15 independent stores are closing on the UK’s high streets every day, driven away by falling demand and rising overheads. Many are abandoning their physical stores to go online, where business rates do not apply. Gareth Jones, who runs artisan chocolatier Alexeeva & Jones in Notting Hill, says escalating costs have made running a profitable shop impossible. His rateable value is due to increase by 46% to £87,500.

“We are retreating because the council is helping to kill the high street,” he says. “It’ll just be chains, estate agents and banks. They’re the only ones who can sustain it. Every week we have people coming in, saying this is their favourite shop. People love it but it’s been an uphill struggle all the way.”

When Jones moved into the shop in 2012, he appealed the current business rate, which had increased from £35,000 to £46,750 in 2010. The council took him to court when he refused to pay, and he eventually settled, rather than commit to a lengthy court battle.

Overall, business rates are expected to rise in London by 42% in 2017, but there are pockets where the rate is higher, CVS figures show. Westminster city council, for example, will see an increase of 66%, and Southwark and Tower Hamlets businesses are facing rises of 56%. The London region of the FSB has surveyed its members and found that nearly two thirds (63%) of central London small businesses will miss out on business rate exemption (because they are over the threshold), and a further 18% are unsure if they’ll be exempt.

Rosie Wolfenden (left) and Tatty Devine co-founder Harriet Vine
Rosie Wolfenden (left) of Tatty Devine and co-founder Harriet Vine are facing a £20,000 rateable value increase at their East London store. Photograph: Gareth Cattermole/Getty Images

Tower Hamlets entrepreneur Rosie Wolfenden says the rateable value of her shop, Tatty Devine has increased from £12,000 to £32,000 per year. Her second store, in Covent Garden, has also increased in value. She is finding the uncertainty of the government’s plans frustrating.

“We don’t know yet what the multiplier is and we don’t know if there’s going to be transitional relief. All we know is the rateable value. If [what we pay] does triple to £1,500 a month, that’s a really serious increase in costs that we will struggle with. We’ve been here since 2000 and we’ve never seen an increase quite so steep.”

Wolfenden is a member of the East End Trades Guild (EETG), led by Krissie Nicolson, and founded by Paul Gardner who runs the 146-year-old Gardners Bags, Spitalfields’ oldest family business. Gardner was recently invited to Downing Street to meet business minister Margot James, as one of the Small Business Saturday 100. He hand delivered a letter from the EETG to Theresa May (via James), objecting to the impact rising rates are having on the East End.

“We’ve had a response back, which we feel is inadequate,” Nicolson says. “So we’re organising next steps. We think it’s ridiculous, because on the one hand, [the government] is saying small businesses are the lifeblood of our economy and welcoming them to Downing Street. And on the other hand, [these] policies will destroy them.”

The EETG, which has 150 members, is proposing replacing business rates with a land value tax, which would put the burden on the owner, rather than the occupier of the property. Nicolson has also worked closely with the London branch of the FSB to lobby the local authorities to do more to protect retailers in their areas and is planning a meeting between Hackney and Islington councils in the coming weeks.

Small business owners are able to appeal to the Valuation Office Authority (VOA) from 1 April, once the new rateable values come into effect. According to government figures [pdf], the VOA received 900,000 appeals per five-year assessment window. The Department for Communities and Local Government also confirmed that local authorities have the discretion to provide discounts [pdf] for ratepayers. This power should increase with government plans to devolve fiscal responsibility to local government from 2020, meaning local councils will keep 100% of business rates. Pilots in Greater Manchester, Liverpool City Region, West of England, West Midlands and Cornwall will start in 2018. London is also piloting retaining an increased share of business rates to cover capital funding for Transport for London.

For those who cannot appeal, or who are unsuccessful, Julian Hindmarsh, partner and chairman of real estate at law firm Howard Kennedy, says landlords may be able to help. “If renewing a lease, an option may be a rent-free period, which are becoming increasingly common. Ultimately the landlord does not want an empty property. Business rate relief is only available for three months, after which landlords will have to pay business rates themselves.”

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Emma Sheppard

The GuardianTramp

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