Any reform in the fall must consider other means of financing, including the housing tax, says real estate advisers Colliers.
John Webber, the company’s head of business rates, said many cash-strapped councils were in talks with the government for a bailout or “funding guidelines” due to the loss of revenue during the pandemic. The twelve-month vacation at 100% business rates (April 2020 to March 2021) granted to the retail, hospitality and leisure sectors is said to have cost local government coffers between £ 11 billion and £ 12 billion sterling of revenue if the central government had not intervened. And as this tariff holiday has been extended by three months until the end of June, with new concessions for the following nine months, a new loss of income on professional tariffs is to be expected.
No wonder, then, says Webber, that the Local Government Association has warned ministers that any planned overhaul of the corporate pricing system must “recognize the importance of this revenue stream for funding key local services.”
In a normal year, corporate tariffs contribute to £ 26 billion net, which is collected and used by local authorities to pay for local services, including social care for adults and children, public health, fire and rescue services, highways and transport and garbage collection – all key services we don’t want to be without.
Yet, says Webber, £ 26 billion from this source alone is unsustainable. Almost a third of the total tariff bill is funded by the physical (bricks and mortar) retail sector (£ 7.6bn), although this sector has seen its shopping streets decimated in recent years . Many retailers are struggling to pay their bills now that vacation relief rates were capped at the end of June, due to the devastating impact of the pandemic and lockdowns on retail and hospitality businesses in Canada. over the past year. And at a basic level, current trade rates are just too high.
As Webber explains, “Because four years have passed since the last reassessment in 2017, corporate rate bills are still tied to 2015 rental levels. Yet values have since fallen. In some parts of the country, we see retailers paying bills at higher rates than what they pay in rents because at least they can (and have been) negotiating with their landlords on rent payments. Recent government legislation – that it will not recognize any Covid-related rate calls due to a material change in circumstances – puts another nail in the coffin for any respite from the high bills that are coming in. “
Webber adds, “We have long been supporters of reforming corporate tariffs. The system in its current form is not sustainable. The 51 pence multiplier in the £ is too high and has created an effective tax of 50% plus taxes on commercial occupants, the relief system is outdated, the system is unfairly biased against the retail sector, Reassessments are too far apart to reflect correct rent levels and the appeals system is a disaster. It is essential that the government properly reform the system and examine other forms of revenue to ease the burden on corporate rates, before it completely roasts the goose that lays the golden eggs.
So what can we do?
One area Webber thinks the government should consider is a housing tax review. Municipal taxes are national rates in the same way that business rates are non-domestic rates – but while commercial rates are based on rental values, municipal taxes are calculated on the value of the property – as of April 1, 1991 The higher H bracket is for properties valued at £ 320,000 and over.
“While it’s shocking enough that we haven’t had a corporate rate reassessment since 2017, it’s probably more shocking that we haven’t had a council tax for over 30 years! It is well overdue. said Webber.
This lack of reassessment has meant that house values and municipal tax bills “are now well out of sync”. According to a recent survey by Xendpay, some of the richest regions of the country have the lowest local taxes and some of the poorest regions have the highest *
Colliers investigated this point by doing their own research comparing the boroughs of Westminster, Solihull and Stockton on Tees in terms of business rates and council tax.
Colliers’ research found that while Solihull and Stockton on Tees generate a similar amount of income each year through commercial tariffs and council tax, in Westminster the situation is entirely different. Westminster is raising £ 2.35 billion on corporate rates, due to higher property values. This is almost twenty-two times what he deducts from the housing tax.
£ 1.01 billion from the collection of trade tariffs is being donated to the central government pool to help other parts of the country as part of the upgrade program.
Considering the wealth of many homeowners in Westminster and the value of homes there, it seems incongruous that there is such an imbalance between the two collections.
In Westminster, landowners in the highest municipal tax bracket, the H Band, pay £ 1,655.12 in council tax per year ** – although many houses in areas such as St John’s Wood and Mayfair are worth several million pounds.
In Stockton on Tees, the H-Band costs £ 422.66 – yet there are actually few houses (if any) in the H-Band or G-Band; the highest band appearing to be the F band where owners pay £ 2,999 a year in municipal tax, almost double what is paid in Westminster. In fact, only A and B Band homes in Stockton, the cheapest homes in the borough, pay less than the highest taxpayer in Westminster City Council.
And it’s not just Westminster that house values and municipal taxes are out of step. Multi-million pound homes in Chelsea and Kensington are changing hands, but the borough’s highest housing tax brackets are £ 2,627.20 a year.
“The current system is simply out of step. Said Webber. “If, as a country, we want our utilities to be paid – and I think the pandemic has shown how important this is – then we need to think beyond just relying on corporate tariffs and drying up the system. . The government is considering other options – like a tax on online purchases or a tax on deliveries for online purchases – and all options should be explored. But a more equitable municipal tax system would certainly be a good start in trying to reduce corporate taxation and rebalance the finances of our local communities.