While Andy Burnham’s stated pledge to radically reform business rates is a welcome one, it’ll take more than empowering mayors and cutting business rates for occupiers to bring about meaningful change, and to create a fair rates system that serves, not just our high streets, but also our communities as a whole.
Already, questions have been raised about how to fund such reform.
One solution is to clamp down on the widespread empty property rates tax avoidance.
The current business rates system is riddled with concessions that are being exploited in plain sight, and that are costing our councils and communities dearly.
We’re talking about a highly unethical mix of tax-avoidance schemes – everything from box shifting and snail farms to fake places of worship – that are costing councils in England over £300 million a year*, denying occupancy to deserving tenants, and creating ‘dead spaces’ that do absolutely nothing for our communities.
(* For the record, that figure is enough to build 12 secondary schools, 2,000 council houses, or 150,000 hospital beds every year.)
Already Wales and Scotland have taken steps to end such avoidance, whereas England – despite recent promises – have yet to do so. (That said, I am heartened by the recent ‘first foray’ into this issue by a dedicated Treasury Committee.)
The approaches of these two devolved nations have both merits and drawbacks.
Wales has introduced a general anti-avoidance rule (GAAR) for business rates, giving new discretionary powers to local authorities. However, this places a significant additional workload on councils and calls for specialist expertise that few local authorities have in-house.
Scotland has devolved empty rates relief to individual councils so they can choose how best to tackle avoidance locally. The drawback here? It risks creating a ‘postcode lottery’, where outcomes and experiences vary dramatically across local boundaries.
Yes, there are some drawbacks, and yet these two models should still be applauded for taking steps to clamp down on the exploiters.
So what then should be done? A number of steps need to be taken in tandem.
That’s because, (to focus on one aspect of what’s being proposed,) even if local mayors had more powers, they would still have to fight hefty and unethical landlords’ lawyers unless the national loopholes were closed at the same time.
Multiple issues are at play here, and different kinds of expertise need to be pooled and drawn on – as became clear during the Treasury Committee’s wide-ranging and publicly aired session on June 30th.
What has emerged is a clear link between the exploitation of high street locations for illicit trade, the avoiding of business rates, ‘phoenixing’, negative health impacts (with the rise in vape shops), and the resulting pressures on the justice system, on councils and on enforcement agencies. Keeping an eye on such a mix of issues is beyond the remit of an individual council. So…
I believe that a stand-alone GAAR body, in tandem with updated secondary legislation that’s quick to implement, would provide the support needed to make new levels of local empowerment meaningful.
Another step likely to have impact relates to how exploiters are treated – be that by ‘naming and shaming’ – publishing a blacklist of ‘phoenixers’, advisers (not just the firm) or individuals who promote or adopt the various avoidance schemes… and/or by introducing heavy penalties. Recently, some have even suggested that jail sentences are needed as a deterrent.
Those within the property sector needs to step up and play fair. It doesn’t make sense for the industry to demand change when so many ‘of their own’ are unscrupulously exploiting the system.
While it is not without its flaws, the business rates system – broadly speaking – does work. Its concessions exist for good reason. And those with genuine entitlements need protecting.
Education has become a major part of what ASTOP has been involved with in recent years. Also we’ve witnessed how, by getting the right people in the room together, different areas of expertise can be drawn on and ‘dots can be joined’.
What began as a ‘Ban Box Shifting’ campaign has widened into an ‘End Rates Avoidance’ campaign. Already we have had many signatories from both sides of the political divide. As you read this, I urge you to get in touch with your local MP and councillors, so they can add their voices to our campaign and to the work of the Treasury Committee.
My sense is that Andy Burnham is looking to bring new fairness to this business rates system. Whatever changes are made, it seems important to create a system that serves and strengthens our communities, redirects funds from exploitative practices to more deserving causes, and restores the tarnished reputation of the property industry.
By taking some of the steps outlined above, I believe we can ensure that the tax burden for radical reform is partly being footed by the exploiters… and also provide landlords with a clear incentive to ‘do the right thing’.
Leave a Comment