Small changes to the rating multiplier for England and Wales provide ideal conditions for Government to transform the system before 2021, says JLL
Thanks to steady economic performance, high employment, low interest rates and good wage growth, the next rates revaluation in 2021 will be less impactful on landlords and tenants than in 2017, according to JLL.
The latest report, 2021 Rating Revaluation, predicts small changes in the rating multiplier in 2021 which, coupled with a period of economic stability, provide ideal conditions for the Government to restructure the business rates system to be more acceptable to, and better understood by taxpayers.
In the report, JLL anticipates that in 2021, the rating multiplier will fall slightly in England from 49.1 pence (2019-20) to 48 pence, but increase in Wales from 52.6 pence (2019-20) to 54 pence.
JLL also examined the impact of the 2021 revaluation on the retail, office, hotel and industrial & logistics real estate sectors, focusing on prime and Grade A stock. The findings are as follows:
Retail: retailing will see some relief, with its overall share of the local rating lists in England falling from 25.3% to 22.6%, reducing the nominal burden on the sector.
Offices: the majority of office locations have seen rental growth, which will ultimately translate into increased rates payable. London’s dominance in this sector continues and the impact will again be felt mostly in the emerging locations around central city areas.
Industrial & Logistics (I&L): the I&L sector has out-performed the rest of the UK property market in terms of rental growth, with the rates burden paid by this sector predicted to rise from 19.0% to 20.6%. Increased internet shopping, competition for land from residential developers, and the benign effects of Brexit on this sector, mean that I&L is the main ‘loser’ from the revaluation.
Hotels: after a period of stable growth, increases in rateable values are likely to be seen in the hotel sector, however this may not be as significant as the increases seen between 2010 and 2017. Coupled with the fall in the rating multiplier and increasing inflation, the 2021 rating revaluation could be much more benign in the hotels sector.
The modest changes to the rating multiplier and relative stability provide a safe environment for the Government to reassess the current system and implement much needed change. As a result, JLL urges the Government to:
- revise the rating multiplier in England to 40 pence following each revaluation, with rises linked to the growth in a selected property rental index between revaluations (multiplier currently 49.1 pence in England and 52.6 pence in Wales.) This would fix the tax at a stable level relative to the tax base and reduce the impact on property investment and development.
- outline an upwards-only transitional scheme for 2021 in England and announce it at the earliest opportunity so that ratepayers are notified well in advance. The funds to grant upwards relief should be raised through a reducing increment to the rating multiplier, not paid for only by those whose rates bills should be falling.
- apply business rates relief with caution and target this at socially-important ratepayers rather than to classes of business properties, removing disincentives to investment and growth and creating a level playing field for companies.
- improve the rating system appeal process and improve the funding and support for the Valuation Office Agency, in order for it to fulfil its statutory role.
Tim Beattie, lead director of JLL's UK Rating team commented: “The relative stability across England and Wales gives the Government the opportunity to do away with some of the distortions in the rating system. The lower volatility of values between revaluations should reduce the fiscal cost of capping the largest increases. The Government should take advantage of this stable period to look again at the business rates system at the earliest opportunity. Outlining an upwards only transitional scheme; ensuring business rates relief is applied with caution; and introducing a revised rating multiplier of 40 pence in England following each revaluation, will return the business rates system to one that works with taxpayers, rather than against them.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019.