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‘Fairer' business rates system leaves many out of pocket

07 April 2005 by
‘Fairer' business rates system leaves many out of pocket

The subject of business rates, traditionally calculated to trigger a yawn, is suddenly setting pulses racing, blood boiling and hackles rising.

The new five-yearly adjustment to business rates kicked in at the beginning of this month. Changes in rateable value are not all in the upwards direction, and in the short term the rate in the pound has even gone down. But many businesses will be hit hard, with some premises seeing rateable value (RV) increases of 50% or even 100%.

ccording to the Federation of Small Businesses (FSB), this translates as an average bill increase across retail - including the hospitality industry - of 15.7%.

Of this total, 3% is designed to offset inflation, says the FSB. It also claims a percentage has been factored in to allow for successful appeals against increases. But the bulk of any RV increase clearly stems from wider shifts in property prices. This is most consistently true of restaurants in areas where values have been spiralling upwards across the board.

Pizza Piazza Mike Keane, associate director at consultants GL Hearn, cited the example of the Pizza Piazza restaurant chain. With 22 branches across the South-east of England, the company is seeing an average RV increase of 45%. While the RV for some branches has stayed the same or even fallen, others have been hit by rises of more than 100%. This is likely to mean an increase in the rates bill of 22.7% for the chain as a whole, Keane calculated.

"Increases on this scale are bound to affect the viability of some businesses," said Keane. "After all, rates are the next biggest cost after wages and rent, and ahead of heat and light."

Comparisons with local property prices are not always the basis for RV reassessments. Chairman of the Restaurant Association Nick Scade owns the New Mill restaurant in Eversley, Hampshire. In the 2005 list his RV has leapt from £60,000 to £90,000. Even allowing for transitional relief, this means an increase in annual bills of more than 22%, from £27,000 to £33,000. By the end of the five-year period, business owners in Scade's situation will be paying the full rate, without relief - in his case £38,000 a year.

Since his property is "in the middle of nowhere", Scade said the RV increase could not be based on accurate comparisons. "It looks like those responsible for this increase thought of a number and doubled it," he mused.
Nor, in Scade's case, has there ever been a request for information about business turnover - an alternative basis for calculating RV. This method is more often used to assess RVs for hotels and traditional pubs.

Michael Yass, head of rating at chartered surveyors Fleurets, has recently been working with a number of pub clients. He believes sharp increases in RV are far from being limited to the restaurant sector, and are more dependent on geographical area than business type.

More complicated As well as being significantly more costly for many, the new rates bills are also more complex. "The Government is selling this new regime as a simplification, but in fact they've already complicated it by having two rates in the pound, and complicated it further by introducing Small Business Relief (SBR)," Yass said.

The two rates in the pound affect businesses either side of a £15,000 RV threshold (£21,500 in central London). SBR, on the other hand, means that businesses with RVs up to £10,000 will be given varying levels of rebate. How is this funded? Properties valued at more than £15,000 stump up a further 7% of their RV to finance the scheme.

Naturally, businesses can appeal against their ratings assessments. The Government has introduced a new system where the result of any successful appeal is backdated, so encouraging more considered, evidence-based proposals.

Ministers are keen to highlight the streamlining effect this has on the overloaded appeals system, but they're less inclined to dwell on the fact that ratepayers now get only one bite at this particular cherry within the five-year period.

The proliferation of rates "advisers" touting for business makes this final provision especially hazardous: get your appeal wrong and you may not have a second chance to put it right. Understandably, reputable consultants such as Fleurets emphasise the importance of the Royal Institution of Chartered Surveyors' code of practice in this area. Scade, at the Restaurant Association, said his appeal would cost £1,000 in consultancy fees - but he had been contacted by less scrupulous advisers claiming a 50% cut of any savings to the ratepayer.

And finally, as if the rates increases themselves were not enough, businesses are also being hit by the new liquor licensing regime. In many cases, this means that an overblown RV assessment is kicking a property into an even higher band of this already costly system. Scade calculated that his restaurant's licence costs would be a £450 conversion fee plus £320 per year, rather than £315 for conversion plus £295 a year in the lower RV band.

All in all, it seems John Prescott's office was demonstrating a keen sense of humour when it introduced its fairer, simpler rates system on April Fool's Day.

Source: Caterer & Hotelkeeper magazine, 07 April 2005

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