This week is the Mary and Bill show – fast turning in to the retail version of Punch and Judy – and no doubt we will return to the rival (?) visions of the high street after I’ve had chance to read Punch’s (or is it Judy’s) Wednesday’s report (and not just react to the leaked recommendations).
But one element has risen up the agenda in recent months – the effect of the rising costs of business rates, with many calls for their reduction, reformulation or abolition. In all of the debate on this, it strikes me that the link between rates and government funding has been underplayed – reducing the rates on business will have to be accommodated one way or another, and there is little clear thought on that so far. But the detail of that is for another time.
A couple of weeks ago some feedback on the blog prompted a dialogue between myself and John Orchard (Welbeck Retail Management Limited). John’s take on the background to business rates struck me as interesting and valuable and so I asked him to provide a guest blog. And this is it:
“If there was any issue that best illustrated the concepts of Government as defined by the fictional Sir Humphrey Appleby it is that of the National Non-Domestic Rate (NDR), known colloquially as ‘Business Rates’. Veiled in departmental obfuscation through evolved labyrinthine processes, this important revenue earner for the Treasury has become one of the most talked about and yet misunderstood taxes of the modern era.
In the Local Government Finance Act of 1988 two new taxes were created. They were both well intentioned and formulated in response to particular issues that had been hotly debated in the country. The first was that related to domestic properties – it was thought fairer to tax every occupier of property rather than just the householder. The idea was naturally developed before becoming law and the resulting fudge was the Community Charge – known to history as the Poll Tax. The riots that ensued after its introduction caused some rethinking and by the early 1990s it was scrapped and the current Council Tax emerged.
The second tax of the 1988 Act was the NDR, with its attendant Universal Business Rate (UBR – the multiplier). Once again, a well-intentioned idea that evolved from issues that had arisen since the previous enactment in 1967 and its predecessor which had left a legacy of postponed valuations that were completely out of step with the reality of the day. The 1952 revaluation would have been the first since 1939, was postponed until 1956; The 1961 revaluation was postponed until 1963 because of technical difficulties in valuing domestic houses (which were then valued with all other properties); The 1973 revaluation had been due in 1968, and the 1982 revaluation did not take place until 1st April 1990 as laid down in the 1988 Act. A key part of the 1988 Act was to ensure that this could never happen again, by creating a five-yearly mandatory revaluation.
The Act did very little else beyond enabling the taxation collection, authorise the appointment of valuation officers and create the UBR and enshrine the idea of quinquennial revaluations. It did not for instance, specify the manner in which the tax should be collected nor mandate the methods for valuing properties. Ever since the first proper application of charging a rate on properties for raising revenues for Governmental purposes (1601 Act) the idea has been that properties were valued based essentially on their size, with some influence inferred by position ( an hotel in Mayfair was likely to be more expensive than say a similar sized hotel in Basingstoke).
This simple idea morphed after the 1988 Act into a complex and peculiar muddle of subjective decision making, where the occupation of the occupier of the property became the major factor in deciding the value of the premises (ignoring the fact that this changes with occupier!). A system emerged with business types, sub-types and even a multitude of differing assessment methods for any one type. With a reducing staff, even with the use of increasing technology, the Valuation Office Agency have created such a monster that it is hardly surprising that they are unable to manage the revaluations in a timely fashion. What may be more of a surprise is that Parliament has clearly failed to understand the most important rationale for the 1988 Act. Perhaps this was because some of the Treasury front bench were still teenagers then? In consequence they saw no irony in what is in effect an abandonment of the fixed term revaluation with the postponement of the valuations for two years in their legislation earlier this year – especially problematical because the existing valuations were pegged at an unprecedentedly high level. Oh, to learn the lessons of history!”
So whether we freeze, reduce, rethink, replace the NDR, could we perhaps be clear what we are doing, why we are doing it and what we aim to get from this system. Otherwise it will simply be another end of the pier knockabout show.