Labour Party Conference: the opposition plans to scrap business rates if elected – but is it enough to win back support from the real estate industry?
During her speech at the Labour Party Conference last week, the shadow chancellor Rachel Reeves announced plans to scrap business rates until 2023. She said the proposed changes would help small businesses and our declining high streets get ‘back on their feet’ following a tough 18 months. Post 2023, business rates would be reformed, and a new ‘modern’ business tax would be introduced– but Labour is yet to define what that looks like in practice.
Labour describes itself as the ‘party for the working people’. After defeat in 2019’s general election, there is no doubt the party is trying to win back its supporters lost to the Tories – especially from those former ‘red wall’ seats. The promise to scrap business rates is sure to be a welcome one for many, but will it be enough?
The property industry has been calling for a reform for some time. Most recently, The British Property Federation (BPF), which counts landlords, developers, property agents and investors as members, said the current system does not reflect ‘real estate values accurately’ and has called for yearly revaluations. Business rates are on a fixed-rate system, based on rateable values. The cost rises annually with inflation but isn’t based on a business’ ability to pay – so our current rateable values are based on values set in 2015. Taking the recent economic turmoil into consideration, it comes as no surprise businesses are struggling to pay up.
Our town centres and high streets – and the retail sector in particular – entered troubled waters long before the pandemic, with the administration of Thomas Cook and retailers such as House of Fraser and Debenhams falling into financial difficulty – the commercial real estate sector was presented with new challenges. Post pandemic, our high streets continue to suffer from big losses with the departure of Debenhams and Topshop and chains like M&S and New Look downsizing across the regions.
When Topshop and other Arcadia Group brands announced their store closures, many were quickly snapped up by online fashion giants like Asos, but the retailers’ bricks and mortar were left behind. Online-only retailers benefit from cheaper business rates and consequently an increase in profits, so it is no surprise many are opting for an online sales concept.
The BPF argues a one-year revaluation system will create a fairer playing field. It has also called for additional business rates relief on empty properties – whether it be retail or office space. Melanie Leech, the chief executive of the organisation said the current system is “undermining town centre recovery and poses a significant risk to the future of our high street businesses”.
The frustration hasn’t stopped with the BPF, in an open letter to the government and Rishi Sunak, the bosses of major retailers, and commercial landlord, Hammerson, said the current system is “not sustainable in the long-term and without reform, shops at the heart of communities will be at risk”. Discounting the relief during the pandemic, business rates raise about £30bn for the Treasury each year.
Under Labour’s proposals, business rates will be scrapped until the next valuation and replaced with a ‘fitting’ reform. For the industry, this proposal from the opposition marks a welcome call to action and would take more landlords and businesses out of the restricted rates system and offer something more suitable. It is a short-term fix which will reduce the burden, but currently there is no comprehensive new scheme on the table.
Unfortunately, Labour is going to have to think this through more vigorously. With a hefty £30m tax bill at stake, it has to validate how it plans to refill the cash pot come 2023. It simple cannot afford to make empty promises and make the same mistakes it made on the run-up to December 2019.