Business rates revaluation: furore over rises

It seems that everyone is talking about business rates rises, even the Prime Minister.

Concerns that disproportionate and unfair revaluations will damage UK businesses are striking a chord within the upper echelons of Westminster. Ministerial statements in parliament on 22 February suggest that there will be financial support for businesses that are particularly hard hit. Although we may have to wait for the Budget on 8 March to find out the details.

But respite from rate hikes can’t come soon enough for some operators.

Certain sites face bill increases three times what they are currently paying, prompting warnings it could put them out of business.

Projected revaluation rises for April 2017 are already having an impact. The Beds & Bars group decided to step away from a site in Covent Garden after 25 years, in part, because the rates rises would have made it unprofitable.

Price of success

Chief executive Keith Knowles told The Morning Advertiser that the firm’s overall business rates would be rising 69%, although increases are due to be much higher at certain sites such as its Flying Horse pub in London, which is facing an increase of 400%. Its sites in Newquay are also looking at substantial rises of up to 137%. “Overall, we are looking at a £675,000 increase,” he said.

Anthony Pender, co-owner of Yummy Pubs and chairman of the British Institute of Innkeeping (BII), says the rateable value for his Victoria pub in Grove Road, London, will climb from £16,200 to £77,000 in April, representing a rise of almost four times the 2016 value. The pubco’s Somers Town Coffee House pub in Euston has gone from a rateable value of £45,000 in 2012 to £76,000.

Pender says: “Two years ago we painted the outside, got new terrace furniture and an awning. But this rise is a mid-term evaluation because of a sizeable business change. The rates are expected to rise again in April, reaching £123,000 because there has been sizeable change to the business and we are over-trading the site.”

To put this rise in perspective, Pender says a nearby pub of a similar size has a rateable value of £31,000, perhaps, he suggests, because it is trading at a much lower level.

But it’s not just sites in the south-east or big cities that are affected.

The Royal Exchange pub, in the potteries in the heart of Staffordshire, owned by Titanic Brewery, will see rates rise from £7,500 to £31,000 in April.

Keith Bott, owner of Titanic Brewery and former chairman of the Society of Independent Brewers, says: “These things need to be done. But our site was closed in 2010 when it was last assessed. So the revaluation was probably done on a closed site basis and we are now trading very well.”

Overall, the hospitality industry seems to be getting a raw deal when it comes to revaluations, especially compared to the retail sector, which expects to see decreases in rates overall.

Reports that businesses like online retailer Amazon and Sports Direct will receive rates cuts have caused particular consternation among smaller businesses. Their rates may be reduced because they operate from out-of-town warehouses.

And this disparity between how pubs and retailers are treated has not gone unnoticed.

Yummy Pubs’ Pender says that the rateable value for his Somers Town site is now catching up with the Marks 

Spencer round the corner in Euston. “When our business rates were £40,000, the rates for M&S were £120,000. M&S rates are now £140,000 while Somers Town is £123,000. [This revaluation] seems unfair as our turnover is a fraction of that of M&S, even though we employ more people.”

Asked how the rates rises will affect his future business plans, Pender says: “We do everything we can to make pubs profitable, but to do that we will need to spend less on sites, less on staff and less on training. If we are employing less people that is less income tax but less people in work. In 2012, our operating margin was 13% but rising business rates have reduced this 6%.”

Titanic’s Bott adds: “[As a pub] we are not just rated on property, we are also rated on our trading figures, which other businesses are not. For example, coffee shops are only rated on their property value. Previously we weren’t competing with coffee shops but we are now.”

It is this unfairness, in part, that prompted industry bodies such as the Association of Licensed Multiple Retailers (ALMR), British Beer & Pub Association (BBPA) and the BII to campaign for reform of the revaluation system to ensure that, in future, pubs are treated more fairly.

But revaluation experts suggest that the rate rises are not entirely unexpected given how much the market has changed since they were last changed in 2010.

James Ward, associate at property consultancy Harris Lamb, says: “In 2008 [when assessments were conducted for the 2010 revaluations], who would have thought Costa Coffee would be a competitor for pubs.”

Valuations basis

Current rateable values are based on the ‘fair maintainable trade’ for the pub on 1 April 2008, so any revaluation would take account of all changes since then.

“In that time we have had a recession, effects of the smoking ban, living wage, the craft beer revolution, the marketplace has changed completely,” says Ward.

He explains that when it comes to assessing whether your rates rise is unfair, “the hardest part for the publican is to gauge whether their property was correctly assessed before and whether it was unfair”.

“It won’t be unfair in every case. In some cases, the increase in rateable value is fair,” he says.

The Valuation Office Agency (VOA) bases its rate revaluations on things such as structural changes to the property or changes in style.

For example, a major refurbishment that might include laying down flagstone floors or landscaping the back yard. Or if a smaller back-street boozer has been transformed into a trendy pub attracting more customers.

A ‘sparkle’ alone – such as new carpet or fresh velour on the banquets – would not necessarily justify a rates rise, says Ward.

And valuations can change. For example, if two years after the rates change, another pub sets up nearby and starts affecting your trade, the operators can apply to have the site revalued.

But Ward says that operators should seek expert advice before putting in an appeal. If the VAO rules that the rates decision falls within the grounds of ‘reasonable professional judgment’, an appeal can be dismissed.

But the ALMR has criticised this clause as a “woolly, subjective and imprecise measure”.

And until issues like this are addressed, industry bodies are unlikely to stop campaigning. BBPA figures show that pubs are responsible for 0.5% of turnover in the UK economy, yet they pay 2.8% in business rates.

ALMR chief executive Kate Nicholls says: “We are calling for the Government to recognise that pubs make a big contribution to UK economy. We would like to see that reflected in the Budget in March."

There are indications that pressure from campaigners, including business leaders and parliamentary backbenchers, is having an effect. On 22 February, Prime Minister Theresa May and communities minister Sajid Javid told parliament that there would be “further” financial help in the Budget (8 March) for those businesses affected by large bill hikes.

“It is clear to me that more needs to be done to level the playing field and make the system fairer,” Javid told MPs. 

Exactly what this will mean for pubs in practice remains unclear, although the announcement does indicate a shift in policy from the Government’s earlier stance when Javid wrote to Conservative MPs dismissing widespread concerns about the impact of revaluation and stating that most firms will not see any increase.

Nicholls adds: “Overtures by the minister to level the playing field are very welcome, but he must follow through with his statements and act decisively. In particular, he must address the very specific concerns of the licensed hospitality sector that is uniquely disadvantaged by the current system.

“If he is serious about reform for the sector then the minister must consider the ALMR’s three chief requests: the introduction of sector-specific relief for pubs and bars, a capping of bills increases, and retention of a robust and fair system for appeals.”

Level playing field plea

For pub operators, revaluation remains a big issue, coming as it does on top of uncertainty caused by Brexit.

“The rates rises won’t put us out of business overnight,” says Titanic’s Bott, “but it’s another challenge to face.

"We know the Government listens to pubs because it scrapped the beer tax escalator. 

"Other businesses don’t pay rates based on trading figures. We are being treated differently from coffee shops. All we want is a level playing field on rates.”