Business Rates Wales Review

The report suggests that changes to Non Domestic Rates could
encourage trade back into Welsh town centres. Will it work?
(Pic : Bridgend Council)

In what could be considered to be a follow-up to my post in April, "Council Tax in Wales - Are the poor paying more?", Business Minister Edwina Hart (Lab, Gower) recently released a report on the future of business rates (Non Domestic Rates) in Wales. An anonymous commentator in the last blog said that Prof. Brian Morgan of Cardiff Metropolitan University was "looking into it", and this is the result.

What are non-domestic rates?

I'm going to partially repeat what I said in the other blog here, but it's necessary for clarity.

Non-domestic rates (NDR) are local taxes levied largely on businesses, based on a "rateable value" of business properties, which is multiplied by a "multiplier" to determine the NDR bill. The provisional "multiplier" for 2012-13 is/was 42.5p, so for a business with a rateable value of £10,000 - the provisional NDR bill would be £4,520 – payable in instalments over the year.

There are "rate relief" schemes that help ease the burden, for small businesses in particular, with low rateable values. It can reduce the bill by as much as 50%, or even 100% for small post offices.

NDR in Scotland is fully devolved, while in Wales, as the report says:

"....resources from rates are partly dependent on Barnett formula consequentials from the distribution of business rates in England."

Non-domestic rates are put into a central kitty, held in the Welsh Consolidated Fund at Westminster, and redistributed back to Welsh local authorities based on a formula, made up of various criteria, including population, relative deprivation and demographics. It forms a large part of the Welsh Government's annual local authority settlement and is estimated in the report to total around £1billion per year.

What does the report recommend?

The report made 19 headline recommendations. The stand-out ones are:

• NDR should be considered for devolution to Wales within the remit of the Silk Commission.
• The Welsh Government should enable local authorities to retain most of the business rate income, with the Welsh Government adjusting the local authority grant to take account of "needs".
• Properties with a rateable value not exceeding £6000 should be exempt from NDR when they are part of a combined business-residential building.
• The Welsh Government should introduce a targeted rate relief scheme for enterprise zones
• A "number of options" should be taken to "level the playing field" between town centres and out-of town retail parks, including the creation of "Business Improvement Districts".
• A recommendation against introducing a "Tesco Tax"/Large Retailer Levy because Wales' economy is "more interconnected with England" and it could drive mobile investment away.
• Incentivise local authorities to "properly enforce" Empty Property Rates regulation.
• Making use of the next round of EU funding to directly support town centres.
• Establishing a Welsh Renewable Energy Relief scheme, with provisions for local retention of rates generated by these schemes.

Is this radical enough?

It would be wrong to say this report is a let-down, but there are some issues here.

Firstly, this is stuck in seeing Non Domestic Rates as the only way to raise local revenues from non-domestic premises. Maybe NDR was the extent of the scope of the Task and Finish Group, but that decision might have been a missed opportunity to explore other options.

In the last few months we've had Mark Drakeford AM (Lab, Cardiff West) raise the issue of a "Land Value Tax" in the Senedd. I mentioned in the last post that some way of taking ability to pay into account – for example US-style local sales taxes – should be considered. A Land Value Tax, for example, might've gone some way to promote quick re-letting and combat empty properties.

Secondly, I don't buy the argument that a "Tesco Tax" in Wales is unviable because of "interconnectivity with England". That might be the case along the border – and yes, it might impact places like Flintshire, Wrexham and Monmouthshire - but it certainly shouldn't further west.

Whether Wales actually needs a "Tesco Tax" is a separate debate, but I'm fairly sure business locaton and investment decisions are based on a potential market. That probably disincentivises Wales as a location more than any "Tesco Tax" would, due to our sparse centres in the west and north.

All options should be on the table to protect town centres, and using a "stick" to incentivise moves to smaller stores in town centres could be just one way of doing it, but it would also need a "carrot".

For example, a Welsh "Tesco Tax" might only be applied to larger retailers based outside defined town/city centres, or the mooted "Business Improvement Districts". If we're going to have big retailers – an economic and social fact of life - let's make sure they are based as close to traditional town centres as possible, or even encouraged to take over older buildings.

The issue of enterprise zones raises its head once again. We've had some moves on that in the last few months, and it's clear from this report that Wales is likely to introduce some kind of business-friendly NDR rate scheme in EZs. I'm sure Edwina Hart will be mulling over that for the next few months.

Ultimately though, in the long-term, Wales (and probably the rest of the UK as well) is going to need a much simpler replacement for NDR. Like Council Tax, I'd prefer one based on ability to pay rather than property values. The Land Value tax could compliment a "Local Sales Tax" and "Local Income Tax", but that could complicate matters and add unnecessary bureaucracy.

The question is how do you do that while sustaining similar levels of tax revenues? And how do you make sure it's fair for businesses (in particular small ones)?