Three reformable aspects of the UK business rates system are acting as significant disincentives for car makers deciding where to focus their operations or build new models, warns ratings adviser Altus Group.
Car makers are hit by local government reluctance to grant discretionary relief, rules that increase rateable values when they invest in new equipment and valuation assumptions that inflate the base rateable values of their premises.
Two key factors inflate business rates bills for car makers. Large car plants tend to be bespoke premises, owned freehold by the manufacturer. They cannot be valued with reference to rental values for premises ‘vacant and to let’. The high hypothetical values currently attributed to these plants take advantage of the occupier’s lack of mobility.
Capital investment in equipment – for new models, for example, or to improve efficiency – further inflates rateable values. The equipment typically installed by car makers is not included among exemptions.
At the same time, car makers are being denied relief by cash-strapped local government, which retains 50% of business rates collected and is due to retain 100% by the end of this decade. Where premises are only partly occupied for a short time, a discount may be available from the billing authority under section 44a of the Local Government Finance Act 1988. This discretionary relief, which means that the occupier pays no rates on the unoccupied portion of the premises for up to a year, is important for car manufacturers when they retool their production lines for new models.
Altus Group challenges some of the reasons given by billing authorities for denying relief for partially occupied premises:
• Part occupation is seasonal or cyclical in nature
• Part occupation is likely to continue for more than three months, or six for industrial premises
• Relief would contravene EU state aid rules
“The UK Government is bending over backwards to protect the automotive sector from the impacts of leaving the EU and keep manufacturers in the UK,” explains Alex Probyn, UK president of business rates at Altus Group. “It’s important enough for secretaries of state and prime ministers to meet chief executives and negotiate sweetheart deals. The government can send a clear signal with some tweaks to business rates regulations. Car plants cannot be treated as cash cows for local government.”
“Local government can do its bit by keeping an open mind and not restricting its broad discretion with narrow policies. A car maker might pay tens of millions of pounds every year in UK business rates. Even a partial discount can be a lot of money. It helps pay for the investment that brings jobs and business for UK suppliers. Business rates are an increasingly important source of income for local government, but prioritising short term income could mean missing out on the economic benefits of major investment.”