A radical business rates review has been launched, although its findings will not form the basis of any revisions until next year's budget, so the current system will remain in place for now. There have been suggestions that the rating system could be changed so that valuations are made on an annual basis. This would cause some short-term disruption, but the system currently works well in parts of mainland Europe. It would limit the shock of any change in rates, because of the increased frequency.
The business rates system is based on rental values, and the last valuation was carried out in 2008 - the peak of the rental cycle - for the 2010 listing which will remain in place until 2017. The problem is - and this is where the potential for a rebate arises - that this arbitrary method of assessing rateable values makes no allowance for changes in the economic cycle. While central London didn't bear the brunt of the collapse in rental values, the regions outside London certainly did. Analysis by commercial real estate services Colliers International indicates that in the 421 business centres surveyed, 118 towns have seen rental falls in excess of 25 per cent from the peak. Rents in Wales, for example, have fallen by 38 per cent and in the north-east by 31 per cent. By contrast, rents in London have risen by 28 per cent. Nationally, rents are 14 per cent down from the peak, or 22 per cent if you exclude London.
John Webber, head of rating at Colliers International, added: "In our experience, given the dearth of rental evidence in 2008, the valuation officer has often done little more than put his finger in the air to ascertain rateable values. We are concerned that the deadline will cause panic, with the cowboys in the industry persuading clients to appeal en-masse without appropriate due diligence."
In the case of hotel operators, Colliers has already achieved rate reductions of 12.5 per cent, with savings of up to £145,000. Specifically, if an existing hotel is faced with new competition opening in its locality, there is a legitimate reason to appeal on its rating assessment.
On the industrial property side, the potential rebates could be high in the east of England because this region has the highest average rateable value. John Webber explained. "In our experience, the valuation officer misunderstands the dynamics of the 'shed' market (large industrial warehouses), and invariably uses inappropriate rental evidence to determine assessments of the majority of properties."
And there is more potential pressure in the pipeline, especially for property in central London. Historically, business rates have been the equivalent of around 35 per cent of the rent paid, and businesses have to work out their sums accordingly. However, due to rental inflation, business rates are now the equivalent of just 15 per cent of rent paid, and businesses are inclined to pay less attention to business rates as a cost. The time bomb is that the next rateable valuation takes place in April 2015, and when implemented in 2017 businesses will find that rates could suddenly jump to more than double what they have been paying.
A Colliers hotline for businesses to call is available on 0800 358 3230.
