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Tackling the business rates burden on pubs


On 26/02/16


Ahead of Budget 2016, the BBPA has been working night and day to persuade the Chancellor to cut duty on beer, the core product of the great British pub, the drink that makes up seven in ten sales.


However, there are a range of other taxes that affect pubs, from business rates to employment and energy tax, where we work hard for a fairer burden on our sector.


Beyond beer duty, business rates are a very high priority


Business rates in their current form are hugely unfair to pubs. Analysis from the BBPA shows that pubs pay 2.8 per cent of business rates but generate around 0.5 per cent of business turnover. This equates to an overpayment of £500 million, relative to turnover, for the sector, as we pointed out in our response to the Government's review of business rates in the summer of 2015.


The iniquity of the system was further laid bare in a recent analysis of the tax burden on the pub commissioned by BBPA from Oxford Economics. This showed that pubs were the second highest taxed, per pound of turnover, out of 69 sectors surveyed.


There are a number of reasons for this discrepancy - many sectors receive major discounts, such as agriculture and charities - but the main reason is that pubs are not very ‘property efficient’ compared to shops, for example. There is no reason why they should be; pubs provide a valuable community service, they allow people to come and enjoy their amenities for a relatively low cost; the price of a pint.


Business rates are a major cost for pubs and therefore a major concern for the BBPA. So what are we doing about it? There are a number of areas where we have been focused on reducing this burden, broadly broken down into review and reform, revaluation and final bills & reliefs.


Review and reform


The Government announced in the Autumn Statement 2014 that there would be a fundamental review into how business rates operate in the UK. At their simplest level, business rates are a tax on the annual rental value of a property, using a five-yearly assessment of that rental value. This basis of taxation has to apply across all business types regardless of the model under which they operate.


The review looked at a number of issues concerning how business rates operate. Issues that received the most attention were the lengthy intervals between revaluations and the underlying basis of rates.


The first point had been exacerbated by a Government decision to extend the time between revaluations from five to seven years, meaning property valuations had become out of sync with current economic conditions (2008 compared with 2015).


The BBPA considered that more frequent revaluations could have some benefits but also added uncertainty. A sudden upturn in trading conditions could lead to a sharp annual increase in your rates bill. Whilst being sympathetic to a shortened revaluation period, we did not believe this would be a fundamental improvement.


The second area was more fundamental. How do you levy a business tax that applies across all sectors?


The British Retail Consortium undertook a major piece of research which looked at four different mechanisms for changing business rates in its Road to Reform report. These included moving to a different basis, such as an energy tax; providing a discount on employment; rewarding successful businesses through corporation tax reform; or modernising the current system.


The BBPA examined all of these options. We felt that a modernisation of the current system was preferable, as the others presented greater risks to the sector. However we were very clear in our response that taxing businesses on property remained unfair to businesses such as pubs and therefore a system of reliefs was necessary to alleviate this burden.


The research that the BBPA carried out into how unfairly pubs are treated under the current rates regime is a landmark for the sector. It ensures that the pub sector has substantial evidence to support our case for reducing the burden of business rates.


As part of wider reforms the Government has already announced plans to devolve rate-setting power to local authorities. At the Conservative party conference local authorities were told they would be able to reduce business rates to stimulate growth. It was also announced that areas with a directly elected mayor could increase rates by up to 2p in the pound with the support of the business community for infrastructure projects. We await further details, but there needs to be clear support for existing businesses, including through existing reliefs.


The process for appealing business rates is also under review and is an area where the BBPA has been leading calls for change. The current appeals process causes huge delays to businesses making representations for changes to their rates. The BBPA has informed the Government's response through the consultation process and is confident that the new regime will be move favourable to publicans, when compared with the current unsatisfactory system. The review is due to publish its findings in Budget 2016.


Revaluation


Business rates bills are based on the rateable value (RV) of a property. This is an estimate of the annual cost of renting that property. This is calculated in different ways by the Valuation Office Agency (VOA) and its devolved counterparts. These were last set in April 2010, based on the rental value at April 2008. Essentially, every rates bill is dependent on how much it cost the business to rent the building they operate from in April 2008.


The latest revaluation of business property is currently underway. This will set a new RV from April 2017, based upon the rental value as at April 2015. This will have a major impact on the rates bills of pubs across the country. The BBPA has had a constructive dialogue with the VOA, with expert analysis and input from surveyors with an in-depth knowledge of the pub industry to help ensure a new basis for rateable values that better reflects the pub landscape of 2015 than of 2008.


Importantly, this will deliver much lower rateable values than the VOA had originally been looking at. This should be a positive first step from 1st April 2017 with pubs receiving more favourable RVs than would have been the case - by as much as 15 per cent on some calculations. The devil will of course be in the detail, but we feel this is a great result that works well for ratepayers.


New RVs are expected to be made available online on 1st October 2016 (and not sent by post as in previous years). They should give an indication of what the rates bill for the next five years will be.


Final bills and reliefs


The two issues of rates and reliefs relate to future work, although neither is too far off.


The final business rates bill is a combination of the RV, the multiplier (the announced tax rate per pound of RV) and any reliefs available.


The BBPA has led and coordinated the campaign on these critical elements on behalf of the pub sector and its wider supply chain, under the banner of Better Rates for Pubs.


Over the last few years the Better Rates for Pubs campaign has highlighted the burden that business rates place on pubs and proposed measures to lighten the load.


This has seen some real success, with a cap on the overall multiplier, extensions to Small Business Rate Relief (SBBR) and the introduction of Retail Relief. The latter two were targeted measures that have removed cost from the bottom line of struggling pub businesses. These have been achieved by working in partnership with others in the retail sector.


In the latest campaign, ahead of the Autumn Statement 2015, there was mixed success as Government tightened its belt. SBRR was extended for a further year but Retail Relief was discontinued. The overall rate was increased by inflation, which fortunately was at a very low level.


This loss of Retail Relief was hard to bear. It was a highly targeted measure that supported pubs and other businesses that were disadvantaged by the current regime. At the time, our Chief Executive Brigid Simmonds commented that this was “effectively a £1,500 tax increase for the majority of pubs,” adding £46 million to pubs’ rates bills. In its submission to Treasury ahead of Budget 2016 the BBPA has called for Retail Relief to be reinstated, at least until the revaluation in 2017.


What does the future hold?


These are uncertain times for those that pay business rates, and particularly those that are unfairly burdened, as pubs undoubtedly are. Pubs need to be aware of:


• The anticipated loss of Retail Relief from April 2016.
• The revaluation from 1st April 2017 - it will cause upheaval and will mean higher costs for some, particularly those that have thrived
• The impact of devolution on rates - this will come from April 2017 in Wales and before 2020 in England - and could lead to higher rates where there is a devolved Mayor
• Potential abolition of national reliefs, such as Small Business Rate Relief


The BBPA believes the current business rates regime is profoundly unfair to pubs and will continue to fight for a better deal for British pubs in all of these areas. We have made representations to the Chancellor and his colleagues ahead of the forthcoming Budget, and will be campaigning hard to make sure the rates system does not undermine the great British pub sector and the 32 million who visit pubs each year.



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