Sharp Relief – What the Business Rates Review means for the sector

Business rates relief might not be the sexiest of sector issues, but it is the single biggest tax relief for charities, totalling almost £1.5bn a year. Last month, the Treasury published a long awaited discussion paper, firing the starting gun for a wide ranging business rates review.

The paper is an early stage, high level look at a range of factors that might be relevant for a modern business rates system, including changes in property value and use, the impact of current system on business investment, and its responsiveness to economic conditions. The intention is for the review to be revenue neutral, meaning that the changes will not raise more or less tax overall than at present (although the distribution of the tax burden among different businesses will likely change).

Given its breadth, we’re likely to see a more focused consultation at a later stage. For now though, there are two key concerns for the sector:

• The direct impact of any changes to the system, in particular business rate relief eligibility;
• The indirect impact of reforms on local authority income, and any knock on effect for voluntary sector income or discretionary rate relief policies.

The indirect impact of reforms on the sector is undoubtedly the more difficult to predict. To help us better understand how local authorities currently deploy discretionary relief, we’re asking members to complete a short survey (more on this below).

‘The most deserving’

Very little of the paper deals specifically with charities, but there is one key passage for the sector:

The government recognises that some sectors, such as farming and charities, play an important part in the community. The government does not intend to increase business rates for those most deserving of relief or exemption and it wants to consider carefully the impacts of any change. It therefore welcomes evidence and analysis to support its decision-making.

A cautiously optimistic interpretation of this is that regardless of the changes the Government makes to business rates more widely, it doesn’t intend to change the reliefs available to charities. A less generous approach might question what is meant by ‘the most deserving’; is this the whole sector or some politically-divined subsection?

NCVO will be clearly articulating the value that the relief represents for the sector as a whole, and the value that this lets charities add to their local communities. Conveying the breadth of activity the relief helps support will also be an important part of our response – for example, charity shops account for just 5% of charitable rate reliefs. We’ve met with other sector organisations and are working closely with them to ensure these messages are communicated as unambiguously and broadly as possible.

80:20 Vision

The review represents more than a potential risk to rate reliefs – it’s an opportunity to explore how reliefs could work better for the sector.  Charities currently receive a mandatory 80% relief on their business rates, and local authorities are able to offer the remaining 20% as a discretionary relief.

In practice, discretionary relief policies vary greatly across local authorities. While some grant charities get the full 20% relief, many local authorities distinguish between charities that have a presence outside the borough and those that work solely within, giving the latter preferential treatment on discretionary relief. Distinctions between different types of activity are also common (for example, between community halls and charity shops).

Changing local authority income has been a key driver for how these policies have been developed. JRF data from the recent Cost of the Cuts report (PDF, 1.6MB) tells us that around 84% of the local authorities it examined had experienced real terms reductions in per capita business rate income between 2009 and 2014. Since April 2013, the cost of providing rate reliefs has been split evenly between central and local government, creating strong incentives for local authorities to claw back discretionary relief in the straitened financial climate.

It’s not clear yet where the outcome of the review will leave local authority income, and consequently what the impact will be for the sector – but we do know from NCVO Almanac data that government spending reductions tend to fall disproportionately on the voluntary sector.

We want to get a better picture of how well discretionary rate relief is currently working for charities, to make sure that any changes only affect the sector positively, if at all. Our members’ experiences of the current system will be invaluable to evidencing our response to the discussion paper – so please complete our short survey by 8 May.

Update:

Thanks again to everyone that responded to our survey. NCVO’s response, submitted jointly with CFG, CTG and the Institute of Fundraising can be read here (PDF, 410KB).