Five years later

Fast forward five years and our comments stand firm. A quickly improving economy, combined with a lack of Grade A supply, means that rents are rising in high performing locations like Manchester, Cardiff and Central London.

On the surface, this fact may appear unsurprising. However, there is a more troubling implication.

Consider the zero-sum, index-linked nature of the nation’s non-domestic rate liability. Business rate receipts are forecast to reach £30bn in 2015, inflating by an estimated 2.5% per annum thereafter. In an economy emerging from recession, those locations where demand for Grade A office stock outstrips supply are predicted to suffer disproportionate increases in Rateable Value, when compared to locations experiencing more subdued rental increases.

Rates bills could increase by 50%

Given the downward pressure on rents in large parts of the country, in order for the government to achieve its forecast business rates receipts after the 2017 revaluation, a UBR of up to 60p in the pound may become unavoidable.

Occupiers of Grade A office stock, with disproportionately large rateable values, may see rates bills increase by as much as 50%.

Re-think on development incentive overdue

The government’s recent announcement of an 18 month exemption from rates for new build properties which enter the rating list between 1 October 2013 and 30 September 2016 has been roundly criticised as insignificant for the majority of new build developments. An urgent re-think is required to motivate developers, kick-start development and mitigate some of the skewed effects of a supply/demand cycle which is now out of sync.

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This article is part of the autumn 2013 edition of Rating in Brief.