Taxing business

Birmingham city council are unlikely to receive as much rental income as expected, warns Alan Clawley.

Business Rates are the equivalent of Council Tax for non-domestic buildings such as shops, offices, pubs, warehouses. They are based on the Rateable Value of the property which is set by the Valuation Office Agency every five years. The RV is based on the Open Market Rental value but takes other factors into account such as whether the property has a shop front and whether the customers of the business have to come to the building in person. People who run a business from home are exempt from BR provided only a small part of the home is use for the business or the goods are sold by post and not to personal callers.

At present the council collects BR for Central Government but in 2020 the council will be allowed to keep the money and spend it themselves. Councils will therefore have a stronger vested interest in business expansion in their area as they hope this will result in an increase in the quantity and value of property used for business purposes and hence an increase in tax revenue to the council. The council can even borrow money against the value of commercial property that hasn’t even been built yet but for which only planning consent has been given. The council is gambling that the local economy will continue to grow and provide the BR income to repay the loans.

Rents are of course determined by demand and as in the housing market, the suspicion is that supply is intentionally limited to maintain or increase value. The commercial property industry can hardly disguise its glee at rising rentals. They are welcomed as a sign of prestige, unlike prices in supermarkets where fierce competition brings lower prices that are demanded by the consumer.

The council’s interest in rising property values explains its eagerness to approve the construction of any Grade A office building in the city centre without much regard for aesthetics, planning and conservation. The NatWest Tower was built in the Colmore Conservation Area and is being demolished to make way for a taller tower providing more office accommodation on the same site. The form of the new tower is no more appropriate for its location than its predecessor and its design is arguably inferior. The planning committee narrowly approved its design only after a speech by Clive Dutton warning councillors that if it were not approved Birmingham’s economy would suffer.

Likewise, Dutton claimed that the listing of the Central Library would be “catastrophic” for the local economy and castigated its supporters as a vociferous minority who, unlike him, bore no responsibility for the city’s economic development. His outburst was more than rhetorical as the loss of anticipated income would have been estimated by the City Treasurer at the time and factored into the council’s revenue budget forecasts.

The growing trend for home-working, online working and postal shopping can hardly be welcomed by the council if it leads to smaller head office buildings in the city centre. The council will also be desperate to discourage suburban business parks as they will provide less BR than city centre offices. Congestion Zones and workplace car park taxes will be avoided by the planners despite growing traffic congestion and air pollution in the centre.

Albert Bore, with the support of his ally Argent plc, set out in 1999 to allay his anxiety about the decline of the city centre with a policy of making Paradise Circus the ‘preferred location for the headquarters of global businesses’. Nearly two decades later it remains to be seen whether the two modest office blocks that are about to rise from the rubble of the Central Library will do the trick. I have my doubts. Making such a policy work is not so easy as building a new public library.

Business people abhor taxes and are adept at getting round them or paying as little as they can. Leaving commercial property empty for long periods is one way of avoiding BR. The elegant but vacant Five Ways Tower in Frederic Road is a case in point (see photo). Downsizing or abandoning expensive city centre head office blocks is a way to cut business costs when times are hard. Which is why the council would be wise not to count on too many new city centre offices for its future income.