The Chiswick Calendar Business Rate Debate

Chiswick High Rd Under Threat

The character of the High Rd is under threat, with small independent businesses squeezed by rising rents and rates at the same time as they are being hit with rising costs due to the drop in the value of the pound. Some are deciding to throw in the towel and close up before they have to pay huge increases in their business rate this month. Others will have to make changes – let staff go or change how they operate in order to survive. This is the message that came out clearly from The Chiswick Calendar Debate on business rates, the consensus from the panel of experts and local business people in the audience.

On the panel chaired by broadcaster and journalist Julian Worricker were Professor Tony Travers, Director of LSE London research centre, adviser to a couple of House of Commons Select Committees and the author of a number of books on local government and politics; David Lesniak, co-owner of American café Outsider Tart; Cllr Theo Dennison, Cabinet Member for Finance on Hounslow Council and Sandra Clark, ratings surveyor and Partner with Montagu Evans.

Click here to watch the whole debate recorded at the Tabard theatre on Monday 27 March, or read the highlights here:

  • Character of the High Rd under threat
  • Business rates unfair and unpredictable
  • A tax on success
  • Not the council’s fault
  • The valuation system needs reform
  • Politicians too frightened to address the problem
  • Costs to businesses are going up
  • Big businesses are driving up rents
  • Chiswick is not a ‘Golden Goose’ for Hounslow Council
  • Chiswick retailers need representation
  • Advice on how to cope with business rates increases

Character of the High Rd under threat

The character of the High Rd is under threat, with small independent businesses squeezed by rising rents and rates. Business rates are linked to the rental value of a property and several speakers made the point that national and global chains are pushing independent businesses out because they can afford to pay much higher rents and rates. Cllr Theo Dennison, Cabinet Member for Finance on Hounslow Borough Council, said: “One of the big problems with those national chains is that they are pushing up the rental value of properties especially in places like Chiswick and the very character of the high street is being changed by them because the impact of them coming in and bidding high is that smaller retailers, local retailers and independents are being squeezed out and now this is when the squeeze is going to bite really hard”. David Lesniak, co-owner of the American café Outsider Tart, told the audience that businesses were already closing in anticipation of not being able to make the business rate payments: “I think you’re seeing businesses close before this even happened, to avoid it altogether… so that’s one way to deal with it, simply to fold now and be done”. Independent businesses also face competition by charity shops, which get an 80% reduction in business rates. Just this week we have heard that a charity shop is to open where the Blink boutique used to be on Chiswick High Rd.

Cllr Sam Hearn, Councillor of Chiswick Riverside ward, made the point that in some high streets ‘every other shop is a charity shop’ and questioned why charities are given a reduction in business rates, when there must be other ways for the government to protect them.

Business rates unfair and unpredictable

The reason that business rates are an issue now is that they are being revalued this month, after a period of seven years. For many the revaluation means huge hikes in the amount they have to pay. David Lesniak described the unpredictability and the unfairness of business rates. He said he knew he had to pay taxes and was willing to pay them but finds the system baffling and had been unable to find out in advance how much they would have to pay. Outsider Tart, on the corner of Chiswick High Rd and Chiswick Lane, occupies two premises jointly, which are rated differently. One half of their café has received a 25% rates increase, the other 50%. Julian Worricker, chairing the debate, cited three shops on Turnham Green Terrace, properties of similar size in the same street which have received widely differing rates demands. Cllr Theo Dennison said “I defy anyone to actually come up with a rateable value estimate for their property. It is impossible… there’s no sense in it”. Sandra Clark, ratings surveyor and Partner with Montagu Evans, explained that business rates are inherently impossible to predict because the amount you pay is made up of the rateable value of your individual property combined with a multiplier, the uniform business rate, a figure set by the government based on national statistics. As one element of the multiplier is inflation, this means that the uniform business rate will almost certainly go up.

There is recognition by government that the system is unfair, as there is a mechanism in place for appeals. Theo Dennison said they are expecting a staggering 60% of businesses to appeal against their rating assessment, which represents a potential loss of revenue to the council of £15m. They are still struggling with the backlog of appeals from the last rating assessment in 2010 with 28% cases still outstanding.

A tax on success

Prof Tony Travers, who teaches Local Government and Politics at the LSE, compared the costs of big retail outlets in out of town malls with high streets: “big retail sheds are not as much affected by all of this, particularly wholesale sheds out on trading estates than high streets and there is a terrible paradox built in to all of this, that the better council and the businesses make this high street, the higher rentals will go and therefore the higher rateable values will go”. Theo Dennison agreed, calling it “a tax on success”. He said: “valuations in Hounslow have gone up significantly, a lot more than Ealing our neighbouring borough, largely because of the success of businesses within the borough and the success of the council itself”.

Not the council’s fault

Theo Dennison was at pains to point out that the increases in business rates are not the council’s fault as they do not set the business rate. Tony Travers backed him up on this, adding that councils lost responsibility for setting business rates in the 1990s when Margaret Thatcher ‘nationalised’ them. Local councils were however made legally responsible for collecting them and for managing the appeals. They used not to keep any of the funds; the money went direct to central government which then paid local councils a grant out of the money received. In 2013 the system was changed; councils now keep some of the money collected but Theo Dennison said: “We do not see a single penny. For every single penny we retain, we lost the revenue support grant. So in terms of financially did we gain from it? No we didn’t. And additionally we took on the risk of all the appeals that businesses will be making”.

By 2020 100% business rates will be localised. George Osborne when he was Chancellor promised that this would be “the biggest transfer of power to local government in living memory”. Theo’s response to that was: “and we will not have the power to raise the business rate or cut it”.

These changes are happening against a backdrop of severe cuts to local government funding. Tony Travers outlined the difficulties faced by local councils: “Their underlying funding has fallen by a significant amount. Their overall budgets are down by 25% or 35% since 2010”. If less money were raised from businesses “it would have to be taken from adult social care or something and that is the underlying problem: that the government has decided to cut the deficit but in a way that protects most of its own services and cutting local government more than almost any other part of the public sector. And that means that at a very, very profound level the question of how streets are cleaned and how rubbish is collected is competing directly with whether old people are looked after properly, whether children are looked after in homes and all of this stuff”.

The valuation system needs reform

All the panellists agreed that the system needs to be reformed. Cllr Sam Hearn said it’s clear that the system is deeply flawed and it needs reform, but that each of the potential alternatives is problematic because the more you try to make a system fair, of necessity the more complex it becomes. He suggested local councils have power theoretically under the Localism Act to reduce rates – powers which Theo Dennison said he was not aware of.

Politicians too frightened to address the problem

David Lesniak suggested that far more revenue would be raised if even a fraction of a percentage was added to residential rates bills, but Tony Travers explained why politically this was a non-starter. “Most politicians privately think that there does need to be a review but the difficulty, as with so many things, is that they don’t quite know what to do about it. It is easy for all of us to imagine that national politicians are powerful people who control the world of which they are a part. Actually they’re petrified. And they’re petrified about fiddling around with any tax anybody can tell they’re paying. And the tragedy for businesses is that in general businesses are less likely to vote than individual citizens and therefore the government’s been willing to push through the business rate revaluation … with a willingness to sweep away the consequences that they would never in a thousand years consider if it was going to hit householders”.

Costs to businesses are going up

At the same time as they are being squeezed by increasing rents and rates, businesses are faced with increases in the cost of the commodities they buy as a result of the drop in the value of the pound following the vote to leave the European Union. David Lesniak said the increase in business rates is just one increase that they were facing this year: “all of our suppliers have increased their prices by at least 10% and they’re all citing Brexit as the reason … so all those things continue to impact staying open. I’m not even talking about a profit”.

Big businesses are driving up rents

“It is very frustrating to see these larger companies coming in and drive up the rent. They don’t really care. Or worse, they have the ability to negotiate maybe even a better rate than I’m getting because the freeholders go ‘Oh, I’d love to have Starbucks in’ … so if they have an adjacent space that’s also available suddenly they can charge more for that based on that. … If Jamie Oliver can’t make it on the High Rd there’s a problem. You know, if he can’t draw enough traffic to pay the rent, that’s telling me the rents aren’t fair to begin with”.

Chiswick is not a ‘Golden Goose’ for Hounslow Council

It’s often thought by people who live in Chiswick that Hounslow Council sees Chiswick as a source of revenue which it mercilessly exploits. Local resident Barbara Elson said: “I’ve always got the impression that Chiswick is the ‘golden goose’ of Hounslow and I think that Hounslow council will kill the golden goose and if there is an opportunity to be discretionary and to support small businesses then it’s something they should really look to do, because otherwise the small businesses are going to go and people like me, well I’ll just cycle to Richmond instead. You’re already made it practically impossible to park in this area so you really do need to start looking after this High Rd”.

Theo’s response to this was: “I love Chiswick, I used to live in Chiswick, my wife is desperate for us to come back and live in Chiswick. As far as we’re concerned it is not the golden goose … the truth is the top three rate payers are Sky, GSK and Mogden sewage works. Chiswick is a hot area, largely because of the business park, but the High Rd is not a great cash cow for us”.

Chiswick retailers need representation

Several people made the point that Chiswick businesses need better representation, especially High Rd retailers. Theo Dennison said part of the problem for businesses is that they do not have a voice. There are 7,181 businesses in Hounslow registered to pay business rates, with no one specifically speaking for them. Syon, the ward he represents as councillor, has 10,414 residents and they have someone representing their interests on the council. Joanna Biddolph, PR consultant, said there has been meeting after meeting over the past decade in an attempt to get local businesses to work together, but people don’t have the time or the energy to go to meetings. She stressed the importance of local businesses at very least comparing notes as she knew of one person in Devonshire Rd paying 18% more in rent than anyone else in the street because she hadn’t compared notes on what other businesses were paying before she signed her lease. David Lesniak said businesses used to feel that they had a voice when Mary Macleod was London ambassador for small businesses but now we don’t even have a town manager.

Advice on how to cope with business rates increases

In terms of practical advice on what businesses can do to mitigate the impact of increased business rates, Sandra Clark gave a check list of basic things to do: number one being to check the valuation officer has the right property. Check the floor area is correct. Compare notes with units close to you. It might be twenty years since the property was visited. Air conditioning for example adds to the rateable value of a property. People don’t always realise that they have to apply for relief, so they may be eligible but won’t get it unless they apply. Appeals can take at least two to three years and you have to pay the rates while it is being considered so even though you may get it back in the end, it is still an up-front cost which the council legally has to collect. If you really are in hardship you can apply for your appeal to be looked at sooner under ‘hardship relief’ but it’s hard to get. Theo Dennison described what leeway the council had to be flexible in collecting payment: “We would love to put any business that’s having difficulty onto a scheme that means they’re able to make a reasonable contribution to what they actually owe and if they’ve got an appeal in we’ll take that into account in terms of what we believe should be paid”. The council does not charge a penalty or charge interest to businesses who’ve agreed a payment plan, he said, but if they have to go to court then the court costs get added on. “It pays a business, just as it pays a resident, to come to an understanding with the council as swiftly as possible. We are obliged to make a collection and we are also keen to make it as easy as possible for those, particularly marginal businesses and those on marginal incomes who are going to struggle to pay. It pays to get that arrangement in place as swiftly as possible rather than bury your head in the sand and think it’s going to go away”.

The chancellor announced £300 million for councils to offer businesses discretionary relief. Theo said Hounslow hasn’t received their share yet. They don’t know how much it will be and he doesn’t yet have an answer as to how they might distribute it.

 

I’d like to thank the Tabard theatre for hosting this event, from which neither they nor we made any profit.