Cllr Jonathan Glanz is a Westminster City Councillor for West End Ward
Business Rates have long been a prohibitive drag on the West End economy. A welcome report by the BIS committee of the House of Commons last week agreed, and called for urgent reform of this outdated tax.
The report finds “Business rates are a substantial cost to doing business in the United Kingdom, and are one of the highest forms of local property tax in the European Union. Our evidence overwhelmingly cited the issue of Business Rates as one of the principal threats to the survival of existing retail businesses…”
The report continues “We conclude that Business Rates, in their current form, are not fit for purpose. The Government needs to carry out a wholesale review of the current Business Rate system.”
It is not difficult to see why.
The total burden of business rates is designed to remain the same year-on-year, only rising with inflation, but is based on a snapshot figure rather than an annual average. With small business rate relief extended the burden falls increasingly on those businesses with higher rateable values – regardless of their profitability. This tax is a callous way to raise revenue that bears no reflection on the underlying performance of the business or its ability to pay.
In times of plenty, it may even be the case that this business property tax fails to reflect a fair share that businesses should be paying. However during a recession and at times of extreme price competitiveness and tight margins on the High Street West End retailers are unfairly penalised.
The Committee recommend that a review includes: “whether retail taxes should be based on sales, rather than on property; whether the retail sector should have its own form of taxation, calculated in a different way from other businesses; and how frequently the revaluation of Business Rates should take place.”
This is nothing new, in 2005 a report for the GLA on the West End economy already found a compelling case for rate reform in the West End, highlighting the abnormality of rates which are based on notional rental values. It found “rateable values for retail space in London are more than £140 per square metre compared to around £100 per square metre for south east England, the closest region in terms of rateable values.”
According to the Valuation Office Agency (who are responsible for assessing the rateable value of a property), the West End has the largest amount of retail floorspace and the highest rateable value of any ward in England and Wales, with 864,000 square metres of retail floorspace and £331 million of retail rateable value, figures that will have significantly increased since the report in 2003.
The total rates collected from businesses in the West End alone exceed the tax collected from the whole of Wales.
Reform is needed to ensure the West End remains a robust and driving force within the UK economy. The West End performed well in 2013, with sales up 5.7 per cent on the bumper 2012 Olympic year. But as the Evening Standard reported footfall rose only 0.1 per cent and actually dipped 2.8 per cent in the second half of the year.
This unsustainable drain on central London businesses sees cash and profitability literally sucked from the capital which in unfairly penalised in a way that fails to reflect the true cost of doing business. The internet, supplying goods from low cost, low rateable value premises make the position even more unfair especially as consumers view goods in the West End only to source them later via the on-line providers.
Published this month, the annual health check on the West End economy co-commissioned by the New West End Company and Heart of London Business Alliance, finds “The West End is in danger of becoming ‘hooked’ on the spending of wealthy foreign tourists and needs to do more to appeal to Londoners and other British visitors. It warns the huge growth in foreign tourism since the Olympics has left the West End vulnerable to sudden changes, such as swings in exchange rates, which could make London far less attractive.”
As the health check report highlights, there are huge risks to the West End if we fail to invest and continually reinvent the consumer offering to compete both nationally and internationally. Sucking vast amounts of profitability out of the economy through business rates, of which Westminster only retains only 7 per cent does not allow the West End to maximise its appeal. Much needed cash, raised through a more appropriate tax, on profitability or sales, would allow significant new investment in public realm and broaden the appeal of the West End.
Rates are a complex and unfair burden on business based on arbitrary property values, that in many central London locations add cost to the bottom line of business which is simple unaffordable.
Urgent comprehensive reform is needed.