Agenda item

Report of the Head of Revenues and Benefits.

5.1       The report was introduced by Martin Hinckley, Head of Revenues & Benefits.  He stated that it covered three areas, the 2017 Business Rate (NNDR) Revaluation, the NNDR Transitional scheme and the changes announced in the Spring 2017 budget.  Generally every five years (it had been seven years since the last occasion), Central Government revalues all the properties and the rateable value which is linked to rents.  Westminster’s overall rateable value had increased by 25% at the 2017 Revaluation.  25% was the average increase with a number of individual properties increasing by over 100%.  This compared with a national average of 9%.

5.2       Mr Hinckley advised that Central Government was required when it carried out a revaluation to introduce a transitional scheme.  Previous transitional schemes had limited year one increases to 12.5%.  This year the Government had originally proposed an increase for large properties with a rateable value of over £100,000 of 45%.  There had then been lobbying by the Council and New West End Company.  The Government subsequently reduced the increase for year one to 42% and also reduced the increase from what was originally proposed in future years.

5.3       Mr Hinckley said that the Revaluation and the Government’s Transitional Relief scheme generated a significant amount of media interest relating to the negative effect on businesses in London.  The Government in the Spring Budget introduced three changes.  These were a small business rate relief support scheme, relief for all public houses with a rateable value of less than £100,000 (the Government was understood to be preparing a consultation paper on this which had been delayed due to the General Election) and the new Revaluation Discretionary Fund.  The Revaluation Discretionary Fund had been set up to support the businesses which are most affected by the revaluation.  The Council had been granted a figure of over £11m for the current year.  This funding was equal to around 0.5% of the Council’s annual NNDR collection.  Mr Hinckley believed there was likely to be a further Government response to their consultation paper published in the near future.  Officers from across the Council were working together prior to setting out how the funding would be allocated.  Officers would be talking to Business Improvement Districts (‘BIDs’), business organisations and Members.  Any views from the Committee on who should be supported under the Revaluation Discretionary Fund would be welcomed.

5.4       The Committee in considering matters relating to this topic heard evidence from Sir Peter Rogers, Chairman, New West End Company (‘NWEC’).  Sir Peter, when asked about the best way forward, recommended the proposals set out in the ‘Committee of Inquiry into Local Government Finance (Layfield Committee)’.  He expressed the view that the business rate tax was flawed and outdated.  Patterns of retail had changed whilst business tax remained constant. He did not believe the tax rates were fair.  They were levied on occupiers when they were already paying more through rents.  The owner was not taxed, it was the occupier.  It was not based on ability to pay as some large multi-national companies were able to pay much less in business rates despite much greater turnover.  There was no reflection on performance or profit.  It was also an incorrect myth that it funded local authority services.  The Council is only retaining (£78m) of the £2bn business rates it collected from businesses in Westminster.  Sir Peter also referred to the fact that businesses paid or would pay the apprenticeship levy, towards Crossrail through the Business Rate Supplement.

5.5       Sir Peter stated that NWEC had been requesting a fair transitional relief scheme and to look at alternatives to assist businesses that suffer.  There was the danger that the current system would result in homogeneous high streets which would destroy the unique character of London.  Small independent London businesses when faced with large business rate increases either had to pay it or close whilst large national chains had the ability to net off the London increases against decreases in rateable value for their properties outside of London.

5.6       Sir Peter emphasised the extent of the business rate increases for large businesses in the West End and the limited time they would have to adjust to the new system.  He did not believe that the Government’s proposals reflected the economic cycle.  The impact of Brexit or the General Election was being reflected in tills now.  It was not reflected at the time of the revaluation.  The entire process resulted in appeals.  These, Sir Peter said, took years to resolve and the new system put the onus on the stores to prove their rateable value was wrong rather than the Valuation Office being required to prove their valuation is correct.  Sir Peter’s view was that business rates failed as a proper tax for Government.

5.7       Sir Peter specifically commented on the Government’s consultation response to the comments received in response to their original document relating to the 2017 Transitional scheme.  Even with the re-adjustments, the percentage increase for large businesses would still be 74% over the next two years, including 42% in year one.  Previous Transitional schemes had limited year one increases to 12.5% and it had been impossible for businesses to predict such an extensive increase.  Sir Peter stated that it was the view of New West End Company that appropriate relief should be targeted to large businesses in order to mitigate the extensive business rates increases that had been unpredictable.  It was the position of NWEC that all businesses should pay their fair share of tax.

5.8       The Committee asked a number of questions and received a number of responses from Sir Peter Rogers and Mr Hinckley, including the following:

·           What more could be done to get across how damaging business rates were for the large independent retailers?  Sir Peter expressed a personal view (it had not been put before the NWEC Board) that a turnover based tax should be promoted for all businesses based on point of delivery rather than a business rates tax based on the premises where the business was located.  He was also of the view that a turnover based tax was likely to provide additional revenue for the Government and would be fair.  It would be reflective of the economy.  If turnover went up or down, so would the level of tax.  Sir Peter considered that online businesses were not currently paying their fair share.  He did not advocate a dual business rate tax and online tax as a remedy.

·           Sir Peter was asked whether a turnover based tax could be more open to fraud.  He replied that it would not if it was assessed on the same basis as VAT.

·           Sir Peter was asked what his response would be if the Government said that a new system of assessment was not justified as it only affected the large businesses in London and there was greater infrastructure being provided in the capital such as Crossrail.  These were the best performing retail streets in the country.  Sir Peter replied that the turnover based tax would provide more money for the Government to invest elsewhere than just West End retail streets.  He was of the view that under the current business rates system, if the flagship retail stores had their profits reduced, this would slow their investment in the rest of the United Kingdom.  The impact on the West End was felt nationally not just locally.

·           Sir Peter was asked how he planned to publically promote changes to the current position regarding business rates.  He replied that this matter required cross party support and he was interested in working with selected think tanks.  NWEC believed it was in the interests of business, the economy and the unemployed.  There was no reason why growth in the West End should not be reflected in improved employment in the deprived wards in the north of Westminster.  He added that the impact of the turnover tax would need to be researched by an independent source before it was fully advocated by NWEC.

·           Sir Peter was asked what NWEC was doing now to assist employment in the deprived wards in the borough.  He replied that NWEC were lobbying for Sunday trading and had said that it intended to sign up fifty employers to generate two thousand new apprenticeship jobs in retail and that the employees would be from local areas.  Sunday trading would act as some mitigation in relation to the increased business rates.  It would also put physical stores on the same footing as online businesses.  NWEC was involved with an apprenticeship programme currently via the Cross River Partnership and that had local placements.

·           Mr Hinckley said that he generally agreed with Sir Peter on most of the points he had made regarding the problems of the 2017 NNDR Revaluation and NNDR Transitional Scheme.  This was reflected in the fact that the Council and NWEC had worked together in providing responses to the Government’s consultation on the Transitional scheme.  He did have some concerns about the collection rate for a turnover based tax rather than a business rates tax (where the Council had a good collection rate) on the basis that there were companies who never file returns and other companies that seek to evade taxes via “accountancy” rates. Mr Hinckley believed that there were two elements that had been missed in the 2017 NNDR Revaluation and NNDR Transitional Scheme.  Firstly areas that were doing well (such as London) were being penalised as set out in paragraph 3.3 of the report and this could have been resolved by setting the multiplier based on the Revaluation change in rateable value within the London area alone.  Secondly, the maximum increase that a large business could face for the 2017 Transitional scheme had jumped from 12.5% to 42.5%.  This again adversely affected the area producing the growth.

·           How much did it cost the Council to administer business rates collection?  Mr Hinckley replied that the Council was given around £3m in allowance to collect business rates.  The contracted service cost approximately £3m.

·           Mr Hinckley responded to a question as to whether gentlemen’s clubs in St James’s Ward could be designated a special case in terms of being a type of business that the new Revaluation Discretionary Fund could potentially seek to assist.  He informed the Sub-Committee that some of the clubs had already approached officers on this issue.   Mr Hinckley advised that the State Aid rules mean that not more than £160,000 could be paid over three years to an individual business, but could be paid in one lump sum.

5.9       RESOLVED: That (i) the Council continue to work closely with NWEC on matters relating to business rates; and

That (ii) the contents of the report be noted.