Introduction
In May 2020, the Government announced the postponement of the 2021 revaluation citing the need to remove the uncertainty this would create for firms impacted by the coronavirus pandemic. Avison Young was disappointed with the decision. A 2021 revaluation would have adopted a valuation date during stable economic times (April 2019), and provided an earlier opportunity to rebalance the tax base to reflect significant changes in sectoral performance, most specifically across the retail sector.
In July 2020, some two months later, the Government announced that the next revaluation would take effect from April 2023. The date of valuation would be set at 1st April 2021 generating real concerns that valuations would have to be undertaken whilst the effects of the pandemic would still be prevalent in the economy. This has indeed proven to be the case, as we have a date of valuation during lockdown, with non-essential retail in England unable to re-open until 12th April 2021 and hotels/hospitality unable to re-open until 17th May 2021. At that time, much of the economy was also subject to large scale Government interventions including furlough schemes, landlords’ restrictions to evict for the non-payment of rent and significant business rates reliefs for the retail and hospitality sectors.
In March 2021, the Government took extraordinary steps to legislate that Covid-19 would not be considered a Material Change of Circumstances (MCC) during the 2017 rating list. A bill is currently passing through Parliament to remove any right to reduce 2017 business rate assessments to reflect matters arising from the pandemic. This action is expected to save the Government £8 - £10 billion in business rates receipts yet comes at a costly price for businesses who have been unable to viably occupy their commercial premises over this time.
At the outset of this research, Avison Young expected rental values across many sectors to fall significantly, resulting in a corresponding hike in the level of the UBR to unprecedented levels, close to 60p. However, the results of our research have shown a less dramatic picture in England, although Wales is more greatly affected.
Despite taking this most extraordinary step, the Government did commit that the 2023 revaluation would fully reflect the impact of Covid-19. A 2023 revaluation remains a favourable option for the Government since revaluations allow the tax base to be re-balanced without the Government facing significant losses in public revenues. At each revaluation the tax take remains largely constant. Nonetheless, a 2023 revaluation presents the Valuation Office Agency (VOA), in its history, with the most challenging backdrop to undertake a national revaluation. Across much of the commercial property sector, the pandemic has resulted in significantly fewer rental transactions, the evidence of which is required to undertake a fair and accurate rating revaluation.
Ratepayers must now contend with HM Treasury’s recently published proposals to reform the business rates system. This was expected to be announced later in the year after the Autumn Budget & Spending Review on 27th October, however, the final report was in fact published straight after the Chancellor’s Budget speech. Our fear that Government would use this exercise to place more emphasis on ratepayers to declare information, whilst curtailing their rights to seek accuracy through the appeals process, has been confirmed. Regrettably, whilst freezing of the multiplier is welcome news for cash strapped businesses for 22/23, the Government seems to have failed to address the inexplorable rise in the UBR and failed to weigh up the need for certainty in tax revenues versus the potential damage it could cause to the competitive edge of UK business in a post Brexit world. We still advocate HM Treasury curtails the total tax take from business rates revenues to £30 billion for the next 3-year revaluation.
This is a revaluation which is showing a major redistribution of the tax take.
Against a backdrop of valuing during the Covid-19 pandemic, Avison Young had a genuine concern at the outset of this research that the rental values across many sectors would fall significantly, resulting in a corresponding hike in the level of the UBR to unprecedented levels, close to 60p. However, the results of our research have shown a less dramatic picture in England, although Wales is more greatly affected.
Undoubtedly key sectors such as retail have been impacted at a fundamental level, with Covid-19 accelerating the decline of the traditional retail sector. However, this has been largely tempered by the growth in online retail and the corresponding boom in the logistics sector. This is a revaluation which is showing a major redistribution of the tax take. The most significant finding is that the traditional retail sector, historically representing over 30% of the total rateable value pool, has been relegated to the third largest sector. In 2023, we predict the retail sector will only represent 25%. It will sit in third place behind industrial/logistics, which has climbed to first place. Offices remain largely unchanged in second position. This demonstrates a fundamental shift in economic activity and rental performance across England & Wales since the previous valuation date in April 2015.