How Rochdale businesses are going to subsidise London

Paul Turner-Mitchell, owner of 25Ten Boutique, says business rates in Rochdale are highly unfair

The contest for Britain’s most hated tax is usually fought between council tax, fuel duty and inheritance tax. But when it comes to the most unfair tax, business rates are fast occupying a league of their own.

Calculated by an obscure formula by quangocrats at the Valuation Office Agency, it leaves many retailers baffled when they get bills for a valuation that seems completely at odds with the value of their property or on their ability to pay.

Furthermore, given that the tax is supposed to be a contribution towards the cost of services provided by local authorities, many are puzzled as to why it keeps going up when services are constantly being cut.

This year the Government had the opportunity to address some of the unfairness at the heart of this tax, but in cancelling a planned revaluation until after the General Election it has left properties pegged against 2008 revaluations, near the peak of the property boom.

To see how this impacts on Rochdale just look at the rateable value for 18/19 Market Place which is the last sizeable commercial retail deal. This property will be billed for business rates of £69,237 this year. Having regard for inflationary increases that is likely to increase in 2015/16 to about £73,500.

Had the 2015 rates revaluation not been postponed and making the reasonable assumption that the Valuation Officer had assessed this Rochdale shop based upon its rent, that shop would have paid rates in 2015/16 of about £56,500. This is because the multiplier would have had to increase in 2015/16 as a consequence of the fall in total revaluations across the country, in order to ensure that taking England as a whole the same amount is raised in real terms following revaluation. This shop will, therefore, be penalised by £17,000 pa for 2015/16 and 2016/17 until the postponed revaluation occurs in 2017 – that’s a massive 30% penalty.

At a time when trading conditions are extremely challenging in Rochdale, how can it be right that small businesses are having to pay 30 per cent extra in taxes than they should be?

By way of contrast, let’s now turn to 193/197 Regent Street, London. This property currently trades as Ferrari but has been let to Hackett. The menswear designer will open a flagship store providing 11,000 sq ft to trade over three floors. Hackett will pay £1.575m pa for a new 15-year lease - a record zone A rent for the street.

If you consider the key ground floor of the shop premises, presently valued for rates purposes at £548,600 Hackett will be paying rates for this space in 2015/16 of some £285,000.

However, had the revaluation planned for April 2015 not been postponed and had the Valuation Office adopted the rent basis agreed by Hackett, the rates bill for the ground floor would have been £767,000 in 2015/16, more than two and a half times greater.

The purpose of rating revaluations is to redistribute the rates burden across all businesses to reflect changes in the economy and the market since the last revaluation. But this letting to Hackett at a record rent provides additional proof - were any required - of the perversity of the Government's postponement decision.

Retailers in central London, which could evidently have afforded to pay a greater share of the rates burden, are being protected from rates increases, whilst those in declining high streets up and down the land have to continue to pay an excessive burden until 2017.

So you get the crazy situation of Rochdale retailers subsidising Regent Street's leading brands. Or as Mary Portas commented this week, it was “bloody mad” that the Government last year decided to delay a revaluation of business rates by two years until 2017.

British businesses already pay more in business rates than anywhere else in the EU. If ministers are serious about supporting the high street it’s time they gave this tax a long overdue overhaul. At the moment it’s not fit for the purpose.