“A tax which reflects inequality of prosperity can't correct inequality of opportunity”: on business rates

The chancellor's famous red box, because you try illustrating a story about bloody business rates. Image: Getty.

On 30 September, for the first time since 2010, the Valuation Office Agency published revised property values used to calculate how much firms across England only owe in business rates. The government says that the revaluation would be fiscally neutral – but while the overall burden will not rise, but rather will be redistributed across the country.

Here, Paul Watson, the Labour leader of Sunderland council and chair of the Key Cities group of 26 mid-sized cities, warns that the change could disadvantage areas of the country beyond the rich south east.

We have heard a lot in recent weeks about the effect the business rate revaluation will have on businesses. London Mayor Sadiq Khan has called it a “kick in the teeth” for the capital, and many businesses have expressed fears that it will stifle entrepreneurship and employment.

I think we can all conclude from the process that it is better if in future, we don’t bottle up major changes in business taxation, only to open the floodgates all at once. Especially following the referendum result, businesses are craving certainty to lay plans for the investment our country needs. Major changes in their tax burden may contribute to the overall perception of instability.

But business rates, despite the name, are not just a business concern, and there is another side to the story: public services. Business rates are a critical source of revenue for our councils. The tax funds about 17 per cent of local council spending on housing, social care, bin collections, and other services we provide.

Of course the rateable value of property varies across the country, and the revaluation reflects that – in London, rateable values will rise about 11 per cent on average. In the North East, they will fall 11 per cent. In fact, they will fall on average in every region outside London.

Now, normally, we account for this variation: central allocations of revenue smooth out the differences between the regions. The last chancellor George Osborne, however, announced that local authorities would have full retention of business rates by 2020. As I reflected last October, however, without some element of fairness and redistribution, full retention will be a blunt and crude instrument which will undermine public service delivery by many local authorities.

The facts are clear: we can’t rely on a tax which reflects the inequality of prosperity across our country to correct the inequality of opportunity we see. Business rates reinforce the income of councils in areas which have benefited from the economy we have built over the last 30 years.

And we know that the British people want a different economy. The one we have now has excluded too many people from sharing the benefits of growth – a concept that has only really been accepted by policy makers following the EU Referendum.

It is especially important to remember the key facts even as the mood music from the government shifts. The Chancellor of the Exchequer has made welcome noises about abandoning the previous chancellor’s significant deficit reduction targets and about expanding infrastructure investment.

We hope that this is followed through to action. But it cannot conceal the fact that local authorities have taken budget cuts greater than almost every other part of government in the last six years.

We are still under pressure. The cuts we have made are not being restored. If the government moves toward full retention of business rates without that element of fairness and redistribution, our revenues will fall still further even as our residents’ needs keep rising. Less affluent local authorities will be punished with another major round of spending cuts.

T0hat threatens to stop the devolution agenda in its tracks. It threatens to stop any inclusive industrial strategy – which the government has been keen to stress as its priority – in its tracks as well. It threatens the people of my city, and the people across the Key Cities group, with the risk of falling further behind the South East.

It also risks failing to heed one of the key lessons of the EU Referendum result – that we have still not done enough to spread growth around the country.

The task of building an inclusive economy with meaningful devolved power is so much more than passing on the responsibility for cuts. That’s why we need to take the opportunity of the revaluation to reflect on the resources local authorities need, particularly in areas which voted Leave, to turn around years of an economy that didn’t work for them. Abandoning a policy that risks entrenching unequal growth would be a good place to start.

Cllr Paul Watson is leader of Sunderland City Council and chair of the Key Cities group of 26 mid-sized cities. 


Here’s how Henry Ford and IKEA could provide the key to solving the housing crisis

A flatpack house designed by architectural firm Rogers Stirk Harbour and Partners, on display at the Royal Academy, London, in 2013. Image: Getty.

For many people, the housing market is not a welcoming place. The rungs of the property ladder seem to get further and further out of reach. There are loud calls to build hundreds of thousands of new homes (and equally loud demands that they’re not built in anyone’s back yard).

If there was ever a time to introduce mass-produced affordable housing, surely that time is now.

The benefits of mass production have been well known since Henry Ford’s car factories made the Model T back in 1908. It was only made in one colour, black, for economic reasons. Not because it was the cheapest colour of paint, but because it was the colour that dried the quickest.

This allowed the production line to operate at faster, more cost effective, speeds. And ultimately, it meant the product could be sold at a more attractive cost to the customer.

This approach, where processes are tested to achieve increasingly efficient production costs, is yet to filter properly into the construction of houses. This makes sense in a way, as not everybody wants exactly the same type of house.

Historically, affordable mass-produced housing removed a large amount of customisations, to ensure final costs were controlled. But there is another way. Builders and architects have the ability to create housing that allows a level of flexibility and customisation, yet also achieves the goal of affordability.

Back in 2006, the “BoKlok” approach to affordable housing was launched to great acclaim in the UK. Literally translated from Swedish, the term means “live smart”. Originally created from a collaboration between flat-pack favourite IKEA and Swedish construction giant Skanska, the BoKlok housing approach was to allow for selected customisation to maximise individuality and choice for the customers. But at the same time, it ensured that larger house building components were duplicated or mass-produced, to bring down the overall costs.

Standard elements – wall panels, doors, windows – were made in large numbers to bring the elemental costs down. This approach ensured the costs were controlled from the initial sketch ideas through to the final design choices offered to the customers. The kitchens and bathrooms were designed to be flexible in terms of adding additional units. Draw and cupboard fronts interchangeable. Small options that provided flexibility, but did not impact on overall affordability.

It’s a simple approach that has worked very well. More than 10,000 BoKlok houses have now been built, mainly in Norway, Sweden and Denmark, with a small number in the UK.

But it is only part of the architectural equation. The affordable housing market is vital, but the cost of making these homes more adaptable is rarely considered.

Flexibility is key. The needs of a house’s inhabitants change. Families can grow (and shrink) and require more room, so the costs of moving house reappear. One clever response to this, in BoKlok homes, has been to allow “built in” flexibility.

Loft living

This flexibility could include a loft space that already has flooring and a built in cupboard on a lower floor which can be simply dismantled and replaced with a “flat-pack style” staircase that can be purchased and installed with minimal disruption to the existing fabric.

Weeks of builders removing walls, plastering and upheaval are replaced by a trip to the IKEA store to purchase the staircase and the booking of a subcontractor to fit it. The original design accounted for this “future option” and is built into the core of the house.

The best approach to new affordable housing should consider combinations of factors that look at design, materials and processes that have yet to be widely used in the affordable housing market.

And the construction sector needs to look over its shoulder at other market places – especially the one that Henry Ford dominated over a century ago. Today’s car manufacturers offer customised options in everything from colour to wheel size, interior gadgets to different kinds of headlamp. These options have all been accounted for in the construction and costing of each model.

The ConversationThey share a similar design “platform”, and by doing so, considerably reduce the overall cost of the base model. The benefit is quicker production with the added benefit of a cost model that allows for customisation to be included. It is a method the construction sector should adopt to produce housing where quality and affordability live happily together.

David Morton, Associate Professor in Architecture and Built Environment, Northumbria University, Newcastle.

This article was originally published on The Conversation. Read the original article.