Not very great expectations

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Not very great expectations

What can we expect from the rating system over the next couple of years? UKWA’s honorary adviser on rating issues Charles Partridge of Lambert Smith Hampton has some less than cheering news.

The question I am most often asked by my warehouse clients is “What can we expect from the rating system in 2009? The answer sadly is not good, and in 2010 it will get worse. I find the decision of the Government, in particular the Department of Communities (CLG) and Local Government to approve a 5% increase in UBR for the year commencing 1st April 2009, so insensitive as to be incomprehensible. It is obvious that this tax increase coming at a time of serious downturn in business will create major problems for warehousing and other businesses across the UK.

The 1988 Local Government Finance Act permits Ministers to increase the level of UBR each April by not more than the increase in RPI in the preceding September. It is true that whilst Governments of both political colours have since the legislation came into effect in 1990 always increased UBR inline with RPI inflation, it remains open to Ministers to adopt a lower figure. Business and commerce face serious difficulties in the current climate and despite the huge sums being injected into the banks; cash is not flowing freely to business and relieving their current cash flow constrictions.

Currently UBR raises approximately £20 billion and a 5% increase will levy an additional billion. Had the CLG persuaded the Treasury to increase Government support to Local Councils by half a billion which is a small sum compared with the support provided to the banks, it would have gone a long way to relieve the pressure on the cash resources of business both large and small.

The allegation made by Caroline Spelman the Shadow Minister for the CLG that “Labour Ministers have their heads in the sand over the effects of this rise” is justified. The reality is actually worse for some unfortunate ratepayers. This is because the transitional restrictions on increases in rate liability introduced in 2005 to phase in rate increases comes to an end on 31st March this year. A small number of ratepayers will face substantial rises in their rate burden, which they will have difficulty paying in the current climate.

Looking further ahead to 2010, what can warehouse operators anticipate? There will be a rating revaluation coming into effect on 1st April 2010 based upon rental values in April 2008. The revaluation is not in itself a tax raising exercise. It is revenue neutral. The revaluation redistributes the rate burden in line with changes in relative rental values between April 2003 (the last Valuation date) and April 2008 (the new Valuation date). Warehousing has been a boom industry over the five years and warehouse rents have risen more strongly than they have in many other sectors. Whilst we will have to wait until the new draft rating lists are published on 1st October to assess the full impact of this revaluation, most warehouse operators should anticipate an increase in their liability.

Levy

The Business Rates Supplements Bill currently before Parliament will if enacted come into effect on 1st April next year. This gives first tier Authorities, County Councils, Unitary Authorities and the Greater London Authority, the power to raise an additional 2p for infrastructure projects not normally covered by their existing financial resources. The most prominent of which is the long awaited Cross Rail tunnel which will, when constructed, link Paddington and Liverpool Street stations.

It is intended that this levy will only be charged in respect of properties with an RV in excess of £50,000 and will, if it is to raise more than 1/3 of the cost of the project, be subject to a vote amongst those ratepayers who will be required to pay. Since RV £50,000 equates to an April 2008 rental value of £50,000, it will be obvious to many warehouse operators that they face the prospect of both an increased liability following the revaluation as well as an additional 2p (5%) levy to fund a Business Rate Supplement.