Iain McGhee: Barclay Review a mixed bag for ratepayers

To say that Ken Barclay's review of non-domestic rates was highly anticipated would be an understatement.

'It was never more evident that wider reform was necessary,' says Knight Frank's Iain McGhee. Picture: Contributed
'It was never more evident that wider reform was necessary,' says Knight Frank's Iain McGhee. Picture: Contributed

Seldom has the normally dry subject of business rates attracted more attention than at the beginning of 2017, when steep rises were in the offing for a multitude of companies across the country.

While Barclay’s review was already underway and some initial steps were taken to mitigate the revaluation’s immediate effect, it was never more evident that wider reform was necessary.

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The conclusions of that process were announced yesterday, with the publishing of the report. Among its more than 130 pages, there are five recommendations that stand out: closing avoidance loopholes; reforming charity reliefs; a reduced three-year revaluation cycle; reviewing empty rates relief on buildings; and a proposed 12-month delay in introducing or increasing rates bills, following a development or improvement.

To take the first of them and its likely consequences, the current 42-day occupation period required to “reset” the clock on relief would be increased to six months. This could have a significant impact on holding costs for empty properties and serve to disincentivise speculative development.

The proposals in the report could hit the third sector too. It suggested changes to charitable relief could bring certain types of occupiers normally considered charities, such as private schools and universities, into the payment regime. In addition, only properties in active occupation by a charity will be exempt.

Meanwhile, the business community has sought more frequent revaluations for some time, and this recommendation is a positive step. That said, the practicalities of implementing this would require careful consideration, particularly regarding the appeal timeframes.

A proposed moratorium on introducing or increasing rates bills, following completion of a development or improvements extensions, is also welcome news. The impending rates bill for many schemes has arguably discouraged new construction in the absence of pre-lets.

However, some detail on how this recommendation would work is required. It raises a number of questions, not least what is to be done if improvements are phased and if a new building is sold in the 12-month period following the works?

Less welcome, from a property owner’s perspective, is the proposition that any non-domestic buildings vacant for five years or more would have a 10 per cent supplement added to the rate poundage to “encourage the owner to better utilise the property”. The report also suggests a change in empty rates relief on listed buildings, limiting 100 per cent relief to a maximum of two years, reduced to 10 per cent thereafter.

To a certain degree, these two recommendations ignore the commercial realities of the property market: landlords want their properties to produce income and they want to reduce holding costs. It’s very rare for a landlord to deliberately hold vacant properties for a prolonged period of time.

Of course, all of these proposals are merely recommendations for now – the Scottish Government will need to legislate to bring them into force.

However, it’s clear that the review is a mixed bag for all kinds of businesses – not only the property industry. Many will watch how it progresses with great interest.

Iain McGhee is a valuations partner at Knight Frank