Here are five reasons why the business rates system doesn’t work

Chancellor Philip Hammond, with his friends and allies from the prime minister's team. Image: Getty.

In recent weeks, the upcoming revaluation of business rates has risen to the top of the news agenda, prompted by opposition to the changes from some of the UK’s biggest employers’ groups; the debate led the chancellor, Philip Hammond, to take steps to soften the impact in his recent budget.

The impending revaluation is intended to ensure business rates are set at a level which reflects the rental value of the property they occupy. This has a significant bearing on how competitive a business environment cities can offer, and the revenue generated by the tax is crucial for funding local government.

The problem is, however, that the forthcoming revaluation comes two years later than planned and seven years after the last revaluation. This delay has worsened an already dysfunctional business rates system, which increasingly does not work for either businesses or local government, for the following reasons:

It’s volatile. The lengthy gap between revaluations creates major shocks to the business rates system for both local government as a revenue stream, and for firms as ratepayers.

As a result, businesses across the country are facing dramatic changes in their business rates bill – with many in London and the South East facing significant increase in rates.

It’s not responsive to economic conditions. The current five-year revaluation cycle means that over time businesses are often paying rates based on out of-date valuations.  This is the especially the case since the last revaluation, which occurred before the 2008 recession and came into force in 2010.

Since 2010, businesses in prosperous areas such as London have been paying less in rates than they should be, while companies in poorer places such as Burnley and Hull have been paying more – hence why London firms are now facing particularly large hikes in their rates. 

It’s complex and poorly understood. The long and technical process of valuation, the lack of correlation between the rates and businesses’ ability to pay, and the annual changes in the business rate multipliers, all combine to make the system opaque and hard for businesses to navigate. 

The appeals system creates financial uncertainty for local authorities. The large volume of appeals to the Valuation Office Agency (for example, to raise issues or changes in property valuation),  and the delays in solving cases, mean that many places might have to refund several years’ worth of rates to businesses, putting their budget at risk.

It can reward perverse behaviour. Because the tax is primarily based on growth in commercial floor-space within the revaluation period, the current system rewards space-hungry developments which are often out of town. This can be to the detriment of town and city centres, and the firms based in them. 


By the same logic, the system does not reward behaviour that supports business and public investment, and economic growth which does not increase net rateable floor space.

With the government now considering reforms of business rates ahead of the tax being devolved to local authorities in 2020, how can it make the system more effective and ensure it maximises the benefits from devolution? Three things stand out in particular.

Firstly, more frequent revaluations are needed on a yearly or bi-annual basis, to make the system more accurate and timely, reduce volatility, and to maintain the legitimacy of the tax. More frequent revolutions would also have the additional effect of reducing the significance of appeals. 

Secondly, the government should replace the fixed yield with a fixed rate. The current system requires that business rates should generate a fixed yield in revenue, irrespective of the state of the overall economy. This both amplifies the volatility in the system and creates distortions which benefits more economically vibrant places. 

Removing the cap on business rates and moving to a fixed rate system would make it more responsive to the wider economy and the ability of firms to pay.

Finally, extend the period of time between resets of the system. Revenue from business rates is used to fund local government, and the amount of baseline funding places receive is reset every five years to ensure that it broadly reflects their level of need. This creates uncertainty for local authorities towards the end of this period, as they don’t know how much business rate income they will retain after resetting. It also gives places only a small time-period in which to accumulate growth, and therefore less incentive to make this a priority.

Carrying out the reset every 10 years instead wouldn’t prevent similar issues arising at the end that period – but it would provide authorities with more long-term certainty and greater incentive to grow their economy.

Making these changes will be critical in creating a business rates system that works for both local government and businesses, makes the most of devolution and offers the stability places need to drive local economic growth.

Andrew Carter is chief executive of the Centre for Cities. This is an edited version of an article first posted on the think tank's blog

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In South Africa's cities, evictions are happening despite a national ban

An aerial view shows a destroyed house in Lawley, south of Johannesburg, on April 20, 2020. The city has been demolishing informal structures on vacant land despite a moratorium on evictions. (Marco Longari/AFP via Getty Images)

On the morning of 15 July, a South African High Court judge ruled that the city of Cape Town’s Anti-Land Invasion Unit had illegally evicted a man when it destroyed the shack where he was living.

That afternoon, the Anti-Land Invasion Unit was out again, removing shacks in another informal settlement.

Evictions were banned in South Africa for nine weeks, after the national government placed the country under a strict Covid-19 lockdown in late March. At present, eviction orders are automatically suspended until the country moves to a lower “alert level” and can only be carried out with a special order from a judge.

Yet major cities including Cape Town, Johannesburg and eThekwini (created through the merger of Durban with several surrounding communities), have continued to use municipal law enforcement agencies and private security companies to remove people from informal housing. In many cases those operations have been conducted without a court order – something required under regular South African law.

Around 900 people were evicted from three informal settlements in eThekwini during the eviction ban, according to the Church Land Programme, a local NGO. Its director, Graham Philpott, says it’s also aware of evictions in other informal settlements.

While evictions aren’t a “new experience” in these communities, the NGO released a report on lockdown evictions because they were “so explicitly illegal”. “There was a moratorium in place,” Philpott says, “and the local municipality acted quite flagrantly against it. There’s no confusion, there’s no doubt whatsoever, it is illegal. But it is part of a trend where the eThekwini municipality has acted illegally in evicting the poor from informal settlements.”

Evictions also took place in Cape Town and Johannesburg during so-called “hard lockdown” according to local activists. In eThekwini and other municipalities, the evictions have continued despite restrictions. In Cape Town, authorities pulled a naked man, Bulelani Qholani, from his shack. That incident, which was captured on video, drew condemnation from the national government and four members of the Anti-Land Invasion unit were suspended. 


The cities say they’re fighting “land invasions” – illegal occupations without permission from the land owner.

“Land invasions derail housing and service projects, lead to the pollution of waterways, severely prejudice deserving housing beneficiaries and cause property owners to lose their investments over night,” Cape Town’s executive mayor, Dan Plato said in a statement. (Plato has also claimed that Qholani did not live in the shack he was pulled from and that he disrobed when municipal authorities arrived.)

South African municipalities often claim that the shacks they destroy are unoccupied. 

If they were occupied, says Msawakhe Mayisela, a spokesman for the eThekwini municipality, the city would get a court order before conducting an eviction. “Everything we’re doing is within the ambit of the law,” Mayisela says. But “rogue elements” are taking advantage of Covid-19, he added.

“We fully understand that people are desperately in need of land, but the number of people that are flocking to the cities is too much, the city won’t be able to provide housing or accommodation for everyone overnight,” he says. 

While eThekwini claims to be a caring city, local activists say the evictions show otherwise.

In one case, 29 women were evicted from shacks during the hard lockdown. With nowhere to go, they slept in an open field and were arrested by the South African Police Service for violating the lockdown, Philpott says.

“These evictions are dehumanizing people whose dignity is already compromised in many ways,” says S’bu Zikode, the president of Abahlali baseMjondolo, a community organization whose Zulu name translates to “the people of the shacks”. 

“It has reminded us that we are the people that do not count in our society.”

Municipal law enforcement and private security contractors hired by cities regularly fire rubber bullets, or even live ammunition, at residents during evictions. Some 18 Abahlali baseMjondolo activists have been killed since the organization was founded in 2005, Zikode says, most by the eThekwini Land Invasion Unit and Metro Police.

(Mayisela says that if city employees have broken the law, Abahlali baseMjondolo can file a complaint with the police. “There is no conclusive evidence to the effect that our members have killed them,”  he says.)

Other Abahlali baseMjondolo activists have been killed by what Zikode calls “izinkabi,” hitmen hired by politicians. Two eThekwini city councillors were sentenced to life in prison 2016 after they organized the killing of Thuli Ndlovu, an Abahlali baseMjondolo organizer. A member of the Land Invasion Unit who is currently facing a charge of attempted murder after severely injuring a person during an eviction remains on the job, Zikode says.

South Africa’s 1996 constitution is intended to protect the public from arbitrary state violence and guarantees a right to housing, as well as due process in evictions. But for Zikode, the South African constitution is a “beautiful document on a shelf”.

“For the working class and the poor, it’s still difficult to have access to court. You’ve got to have money to get to court,” he says. 

The actions by municipal law enforcement are breaking down social trust, says Buhle Booi, a member of the Khayelitsha Community Action Network, a community group in the largest township in Cape Town.

“There’s a lack of police resources and those very few police resources that they have, they use to destroy people’s homes, to destroy people’s peace, rather than fighting crime, real criminal elements that we see in our society,” Booi says.

For him, it’s a continuation of the practices of the colonial and apartheid governments, pushing poor people, most of whom are Black, to the periphery of cities.

Around one-fifth of South Africa’s urban population live in shacks or informal dwellings, according to a 2018 report by SERI. Many more live in substandard housing. City governments maintain that the shacks destroyed during anti-land invasion operations are unfinished and unoccupied. But Edward Molopi, a research and advocacy officer at SERI, says that this claim is an attempt to escape their legal obligations to get a court order and to find alternative accommodation for affected people. 

The roots of the current eviction crisis go back to apartheid, which barred non-white people from living in cities. Between the 1940s and 1970s, tens of thousands of people were forcibly relocated from neighbourhoods like Johannesburg’s Sophiatown and Cape Town’s District Six to remote townships.

In the 26 years following the end of apartheid, deepening economic inequality and rampant unemployment have limited access to formal housing for millions of South Africans. Government housing programs have mostly focused on building small stand-alone homes, often on the peripheries of cities far from jobs and amenities.

While these well-intentioned projects have built millions of homes, they’ve failed to keep up with demand, says Marie Huchzermeyer, a professor at the Centre for Urbanism & Built Environment Studies at the University of the Witwatersrand in Johannesburg. Government-funded housing projects “will never on it’s own be enough,” she says. “It has to be accompanied by land release.”

Government policies call for the “upgrading” of informal settlements and the formalization of residents’ occupation. But “there are still very, very, very few projects” of that nature in South Africa, Huchzermeyer says. “Even if it’s an informal settlement that’s been around for 20 years, there still seems to be a political wish to punish people for having done that.” The government wants people to go through the formal process of being given a house, she says – and for them to be thankful to the government for providing it.

At the municipal level, change will require “real leadership around informal settlement upgrading and around ensuring that land is available for people to occupy,” she says. 

Despite the end of enforced racial segregation, spacial apartheid remains a factor in South Africa. There are few mixed-income neighbourhoods. Those who can afford to often live behind walls in sprawling low-density suburbs, while the poor live in overcrowded slums and apartment buildings.

The creation of the apartheid city “didn't happen by chance,” says Amira Osman, a professor of architecture at the Tshwane University of Technology. “It was a deliberate, structured approach to the design of the city. We need a deliberate, structured approach that will undo that.”

Since last fall, Johannesburg’s Inclusionary Housing Policy has required developments of 20 or more units to set aside 30% of those units for low-income housing.

The policy, which faced significant opposition from private developers, won’t lead to dramatic change, says Sarah Charlton, a professor at the Centre for Urbanism and Built Environment Studies, but it is “an important and significant step.”

Zikode isn’t optimistic that change will come for shack dwellers, however.

“People in the high positions of authority pretend that everything is normal,” he says. “They pretend that everyone is treated justly, they pretend that everyone has homes with running water, that everyone has a piece of land – and hide the truth and the lies of our democracy.”

Jacob Serebrin is a freelance journalist currently based in Johannesburg. Follow him on Twitter.