Agenda item
Minutes:
The Committee considered the undernoted report:
“1.0Relevant Background Information
1.1The purpose of this paper is to present to Members a summary of the response made by the council to the consultation on Rating of Commercial Properties: small business, large retail properties and empty shops.
Consultation Proposals
· General expansion of the small business rate relief scheme. 20% relief to be provided to eligible premises with an NAV of £5,001 - £10,000. It is estimated that an eligible small business will benefit from £730 p.a.
· No additional relief would be provided to those currently receiving small business rate relief (NAV of £5,000 or below).
· An average levy on rate bills of around 20% to be applied to those retail premises with a rateable value of £500,000 or more, in the form of a regional rate supplement. The costs facing large retailers are estimated at £85,000 p.a. on average. The average rates bill will increase from £430,000 to £515,000.
· Allowing the use of shop fronts or shop window displays for (non-political) community, artistic or other non-commercial purposes so that the full occupied rate is not charged on otherwise empty properties. Entitlement to 50% empty property relief (or exclusion if applicable) would be preserved.
· The above changes would apply for three years from 1 April 2012 until 31 March 2015.
· Clarifying the legislation relating to the valuation assumptions used at non-domestic revaluation, by being more specific about the state and circumstances to be taken into account in compiling a new valuation list. This would take effect at the next general revaluation in 2015.
2.0Key Issues
Twenty-nine of the 77 large retail stores are in Belfast and 19 of these are located in the city centre. The geographical description above gives a misleading impression. The 77 comprise mainly multiple chain stores such as Tesco, but also a substantial number of ‘High Street’ stores, located in almost all cases in Belfast city centre. The stores listed below:
|
Geographical Distribution of the 77 Stores Affected
|
|||
|
|
Belfast |
Elsewhere |
NI Total
|
|
Boots |
1 |
|
1 |
|
Charles Hurst |
1 |
|
1 |
|
Debenhams |
1 |
|
1 |
|
Eason & Son (NI) |
1 |
|
1 |
|
Harvey Norman Leasing (NI) |
1 |
|
1 |
|
House of Fraser |
1 |
|
1 |
|
IKEA |
1 |
|
1 |
|
Republic |
1 |
|
1 |
|
New Look |
1 |
|
1 |
|
Next |
1 |
|
1 |
|
Peacocks |
1 |
|
1 |
|
Primark Stores |
1 |
|
1 |
|
River Island |
1 |
|
1 |
|
TK MAXX |
1 |
1 |
1 |
|
Toys R Us |
|
|
1 |
|
WH Smith |
1 |
|
1 |
|
Zara |
1 |
|
1 |
|
H&M |
2 |
|
2 |
|
Arcadia (BHS; Top Shop; Wallis) |
2 |
1 |
3 |
|
Homebase |
1 |
2 |
3 |
|
Dunnes Stores |
1 |
3 |
4 |
|
Marks & Spencer |
1 |
4 |
5 |
|
Asda |
|
7 |
7 |
|
B&Q |
2 |
7 |
9 |
|
SaInsbury’s |
2 |
7 |
9 |
|
Tesco |
2 |
16 |
18 |
|
TOTAL |
29 |
48 |
77 |
Retail Levy
2.2It is reasonable to assume that most of the affected stores would continue to operate under the levy and would suffer a detriment only in the sense that their profitability would be reduced by the amount of the levy.
2.3It is only a slight simplification to say that the 77 stores to be affected by the proposed retail levy comprise supermarkets (and B&Q) on the one hand and the large city centre stores of Belfast on the other hand. The business model of large store chains, as described to us by the principal chains affected is that each store is a cost and profit centre and stands or falls by the contribution it makes to the group as a whole: a store pushed into loss by a levy averaging around £85,000 per store may not be retained by the group on the grounds that the chain could ‘afford’ to pay the £85,000. A review of publically available documentation shows that the parent companies of several of the stores are in significant financial difficulty; and one chain at least has a recent record of closing stores in marginal locations. If the levy tipped even one major Belfast store over the edge into closure, this would have a major impact on the city’s rate base and the local economy.
2.4The levy may also impede investment. Smaller retail outlets, restaurants, and chain supermarkets are very important, but it is the High Street stores that define Belfast as a major retail centre within the UK. The shopping centre of Belfast offers a service to the whole of Northern Ireland, and to visitors from elsewhere. It has a good selection of the British and Irish chain stores, and of course of smaller and specialist shops of all kinds. But it has, for instance, no branch of John Lewis, still less of Selfridges or Harvey Nicholls. It is clearly desirable for Belfast to step-up its retail offer and the levy may impede efforts to do this.
Alternatives to Proposed Retail Levy
2.5There are 260 properties with a net annual value exceeding £500,000, of which 77 are ‘large retail’. On a pro rata basis, we suppose that the required levy would be 6% rather than 20% if levied on all 260 premises rather than on large retail premises only.
2.6In Scotland a new ‘public health levy’ on major retailers has been proposed as part of an effort to alleviate cuts to Scotland's local authorities. Large retailers that sell alcohol and tobacco will have to pay a business rates supplement from April 2012. The levy will be applied through a business rates supplement on premises with a rateable value above £300,000 that sell tobacco and alcohol.
Small Business Relief
2.7The council welcomes the extension of small business relief which will benefit around 9,000 small businesses by over £700 per annum. The council would also encourage further research to be carried out on the market failures that face small businesses in Northern Ireland so that a targeted approach could be developed which aims, by ameliorating market failure, to achieve effective economic impact.
3.0Recommendations
3.1Members are requested to note the contents of the report.
4.0Documents Attached
Appendix 1 - Full response.
Appendix 1: Draft responses to questions
Question 1
1. Do youhave anygeneral commentson thepreferredapproachpresentedin this paper?(Specific questionsareposed laterin thispaper)
The council welcomes the relief offered to small businesses through this proposal. The council has concerns about the potential impact on the city’s rates base as 29 of the 77 retailers are based in Belfast.
Question 2
2. Do youagree thatthe proposedlarge retaillevy shouldbe usedto provide additionalhelp tosmall businesses?
Response
It is true that most stores would continue to operate under the levy and would be affected only in the sense that their profitability would be reduced by the amount of the levy. It is only a slight simplification to say that the 77 stores to be affected by the proposed retail levy comprise supermarkets (and B&Q) on the one hand and the large city centre stores of Belfast on the other hand. The business model of large store chains, as described to us by the principal chains affected is that each store is a cost and profit centre and stands or falls by the contribution it makes to the group as
a whole: a store pushed into loss by a levy averaging around £85,000 per store may not be retained by the group on the grounds that the chain could ‘afford’ to pay the £85,000. A review of publically available documentation shows that the parent companies of several of the stores are in significant financial difficulty; and one chain at least has a recent record of closing stores in marginal locations. If the levy tipped even one major Belfast store over the edge into closure, this would have a major impact on the part of the city affected, and would we suggest have a greater adverse impact on the economy than any benefits from the business relief.
The levy may also impede investment. Smaller retail outlets, restaurants, and chain supermarkets are very important, but it is the High Street stores that define Belfast as a major retail centre within the UK. The shopping centre of Belfast offers a service to the whole of Northern Ireland, and to visitors from elsewhere. It has a good selection of the British and Irish chain stores, and of course of smaller and specialist shops of all kinds. But it has, for instance, no branch of John Lewis, still less of Selfridges or Harvey Nicholls. It is clearly desirable for Belfast to step-up its retail offer and the levy may impede efforts to do this.
Question 3
3. What areyour viewson thepreferred approachof anaverage 20%levy (against theoverall ratesbill) onhigh valueretail premises?
Response
We have summarised above our concerns about the levy. The lower the rate, however, the weaker are the immediate practical objections and therefore if it is to be implemented it should be implemented at the lowest possible rate. We would reiterate that this view has no implications for the support that ought to be extended to small businesses, which should be considered separately from the question of the levy.
4. Do youhave anyviews onthe alternativesto afixed percentageretail levy?
Response
Scope of the proposed levy
A levy on all large properties should be considered. We note that there are 260 properties with a net annual value exceeding £500,000, of which 77 are ‘large retail’. On a pro rata basis, we suppose that the required levy would be 6% rather than 20% if levied on all 260 premises rather than on large retail only.
The consultation paper notes that a further 20% of properties are electricity or gas company premises or banks, hotels and call centres etc. The only argument in the paper against their being subject to the levy is that of mobility. It seems doubtful to us that the occupiers of many of these premises are truly mobile or that of those that may be mobile, many would actually move. The occupiers of the remaining 50% of premises are described as ‘public bodies, receive public funding etc’. The argument against their inclusion amounts to a claim that their inclusion would simply recycle public money. Even if this claim is true, there is a case for including these premises: their inclusion would articulate what is in a sense the real cost of providing the relevant services, including an appropriate contribution to the goals of the small business rate relief. But it is unclear from the description what types of entity fall within the description. Many bodies in receipt of public funds are at arm’s length from the core of the public sector and may receive a substantial amount or even the majority of their funding other than through the public sector (eg through fees or user charges).
In Scotland a new ‘public health levy’ on major retailers has been proposed as part of an effort to alleviate cuts to Scotland's local authorities. Large retailers that sell alcohol and tobacco will have to pay a business rates supplement from April 2012. The levy will be applied through a business rates supplement on premises with a rateable value above £300,000 that sell tobacco and alcohol.
Banding
We agree with your suggestion that banding the levy so that the largest premises paid more would lead to undue complication.
Question 5
5. What areyour viewson alevy beingapplied selectively, for example confinedto supermarkets orproperties outsideof towncentres?
Response
One option which could be considered is a new public health levy’. Large retailers that sell alcohol and tobacco would have to pay a business rates supplement. The levy would be applied through a business rates supplement on premises with a rateable value above £300,000 that sell tobacco and alcohol. This scheme has already been introduced in Scotland.
Question 6
6. Have youany otherviews onthe issuescovered inthis section?
Response
No
Question 7
7. Wouldyou agreewith theproposal toextend thesmall businessrate relief schemefor threeyears, asa temporarydownturn measure?
Response
We appreciate the need to support small businesses. We note that the businesses to be assisted by the proposed new tranche of relief are not the very smallest: they may perhaps be described as the smaller medium-sized businesses. The relief of some £700 that they will each receive on average would, doubtless, be welcome. We would also encourage further research to be carried out on the market failures that face small businesses in Northern Ireland so that a targeted approach could be developed which aims, by ameliorating market failure, to achieve effective economic impact.
8. Wouldyou agreewith theproposal tofund thisthrough theimposition ofa rates levyon thehighest valueretail properties?
Response
We have already stated concerns about the levy in our response to question 2.
Question 9
9. If not,how shouldthis befunded?
Response
A 6% levy on all properties with an NAV greater than £500,000 would reduce the risk of chain closures in Belfast city centre.
Question 10
10.What areyour viewson theproposal toextend thereach ofthe existingscheme rather thanprovide additionalrelief tocurrent recipientsof smallbusiness rate relief?
Response
A view on this matter needs to be informed by research. We would suggest that there is some risk in a scheme that provides, by way of relief, small sums to a large number of businesses, rather than a more targeted programme, and this consideration would point towards raising the existing relief rather than extending relief to a greater number of businesses, but we would reiterate that the approach should be based on research evidence.
Question 11
11.Do youagree that20% reliefshould beprovided toeligible premiseswith anNAV of£5,001 -£10,000?
Response
Again we have no strong view. Given the general approach, we have no reason to suggest, say, that the relief should be 15%, but provided to a wider NAV range, or 25% but provided to a narrower range.
Question 12
12.Do youagree thatthe reliefshould beapplied toall non-domesticpremises (with somelimited exclusions) regardless ofuse?
Response
Yes. Uniformity is to be preferred unless there are strong countervailing reasons
Question 13
13.What areyour viewson thesmall businessretail reliefoption, takingaccount of theissues associatedwith thisoption?
Response
On the whole, we consider that a restriction of the proposed relief to a particular industry is inappropriate.
Question 14
14.Do youhave anyviews onthe generalissues raisedin thissection?
Response
No.
Question 15
15.Are thereany othermatters thatyou thinkshould beconsidered?
Response
No.
Question 16
16.Do you agree with the proposal and the suggested approach?
Response
Yes. We believe strongly that where it is not, for the moment, possible to use retail premises for business purposes, it should at least be possible to make them attractive without losing rate relief.
Question 17
17.Do you have any views on the issues raised in this section?
Response
None apart from than those in responses to other questions
Question 18
18.Is the scope of the suggested categories of use sufficient to meet the policy objectives?
Response
We believe so; however, there is scope for clarification. We have been impressed by displays such as those in central Sheffield by art students exhibiting their work in vacant shop premises. The crucial point is ‘animation’ of city centres, bringing them back to life by allowing the widest possible range of displays in empty shops whilst maintaining the principle of ‘no commercial use’.
Question 19
19. Have you any views on how this should operate?
Response
The consultation document makes clear that this question relates to the physical depth of permitted displays or similar criteria. We would comment simply that the operating criteria should not impede attainment of the objective. In case of doubt, the criteria should be generously drawn.
Question 20
20. Have you any views on the type of activities that should be excluded?
Response
The exclusions suggested in the consultation document seem appropriate
Question 21
21. Do you have any views on the issues raised in this section?
Response
We agree with the general approach of clarifying and standardizing practice in Northern Ireland. We note that the consultation document says that there will be ‘…no real change to the operational practice that is already in place.’ We should appreciate confirmation that this is indeed the case and that the process described in the consultation document will not, perhaps inadvertently, lead to substantial changes in the relative rate burdens faced by businesses of different types or in different areas.”
The Committee approved the foregoing comments as the Council’s response to the consultation document.
Supporting documents:
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Consultation Paper - Rating of Commercial Properties- small business, large retail properties and empty shops, item 5b
PDF 97 KB -
Appendix 1 - Rating of Commercial Properties, item 5b
PDF 125 KB
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Appendix 2 - Rating of Commercial Properties -, item 5b
PDF 78 KB