Are you rich and influential? Are you interested in lobbying ministers to water down or even abandon a tax change that will make you worse off? Then the first thing you need to do is find a human shield.
Whenever a long overdue overhaul of council tax is floated it is never long before a penurious little old lady rattling around in a giant house in the Home Counties pops up in the media as a compelling reason not to change anything. And now the business rates regime is being updated we have small independent retailers in well-off areas thrust in our faces.
One retailer in particular has featured prominently in this lobbying campaign. The novelist Jeanette Winterson has written that her luxury grocer-cum-deli, Verde & Company in east London, which started life during the Napoleonic Wars selling “oranges the size of cannonballs”, will have to close because of the revaluation of rates due in April.
Who could be in favour of poverty-stricken old ladies paying more council tax? What kind of monster wants to drive small shopkeepers like Winterson to the wall? But don’t be fooled. These are human shields, emotive propaganda case studies whose function is to sway public opinion, intimidate ministers afraid of losing votes, and, ultimately, protect the well-off from paying their fair share of tax.
The big losers from a revaluation of council tax would be the richest households in the country. And the main beneficiaries of the watering down of the business rates revaluation, which now seems to be in train after ministers have shown signs of losing their nerve, will be large firms and landlords in prosperous parts of the country.
Firms in well-off areas facing higher business rates, even large firms, do deserve our sympathy to some extent. It was cowardly for the Conservative ministers George Osborne and Eric Pickles to delay this revaluation, which had been due to fall in 2015, just before the election.
The last revaluation was in 2010. Seven years is far too long to wait between revaluations and relative rents have changed significantly in that time meaning startlingly large shifts in some firms’ ratable values.
Businesses of all sizes are entitled to better guidance than this over their future tax bills.
While it’s true as some have pointed out that over time the cost of business rate increases is borne by landlords rather than firms as rents adjust, it bears repeating: over time. And heaven knows this is a financial problem many firms do not need while they are also struggling with a sharp spike in imports due to the plunge in the pound in the wake of the Brexit vote.
Nevertheless the complaints are overblown. Winterson says the rateable value of her shop will rise from £ 21,500 to over £54,000. This implies she’s paying around £10,000 in business rates. But looking at the detail of the transitional relief scheme put in place by the Government this suggests her business rates bill will increase by 12 per cent from April to some £11,200.
A £1,200 tax increase is certainly not nothing (and her rates would continue to rise sharply over the next few years) but it’s hardly the obscenely punitive reparations bills presented by the Allies to Germany in 1921 either.
Moreover, it’s vital to grasp that Winterson’s loss is the gain of other firms in less prosperous areas since this is a revenue neutral revaluation for the Government. The total business rates tax take will not rise.
Indeed because of the delay in the revaluation, although she doesn’t acknowledge it, Winterson has been already been gaining financially in recent years at their expense.
The trouble with the coverage of this subject is that we do not hear from those firms who stand to benefit from the reform – and who stand to lose if the revaluation is delayed further or watered down. Why do we not see media case studies of a medium-size insurance company in the West Midlands, whose bills are supposed to fall by some 16 per cent? What about a manufacturer in the North-east which is due a 9 per cent fall in its business rates? Why are they any less deserving of our compassion? Regrettably, this represents a journalistic failing.
Yes, it’s tough being a modestly-sized retailer. But it’s easier in more prosperous areas. Winterson’s shop benefits from close proximity to some of the wealthiest workers in the world in the City of London; and hordes of tourists. That means more well-heeled passing footfall and, if she stocks fine products and runs her business well, higher sales. That’s why her rent is higher; other firms would be willing to pay top dollar to rent her prime retail premises.
By lobbying against the revaluation she’s effectively demanding that she pay a lower rate of tax than an equivalent grocer in a less prosperous town. This is Robin Hood in reverse: the poor being robbed to pay for the rich.
But perhaps no firms should pay business rates. Some argue that the tax should be cut for everyone, or even scrapped entirely. Yet let’s follow this logic through. Business rates bring in around £29bn a year.
That’s around 4.5 per cent of the entire tax take. If you get rid of that what else should be cut to make up the shortfall? The NHS? Education? Foreign aid? It would be nice to be able to reduce taxes on firms, especially small retailers like Verde. Yet one only has to look around to see that there are also other demands on our scarce public resources: more funding for mental health services, more money for social care, more support for refugees. And on and on the list goes.
Apologies Jeanette, but cannonball-sized oranges are not the only fruit.