A successful business rates appeal by online retailer Amazon has left a Staffordshire council needing to take £863,000 from reserves to balance its budget this year.
Late last year, the Valuation Office Agency ruled in favour of Amazon, which appealed against the rateable value of its warehouse at the G. Park industrial and distribution hub near Rugeley in the county.
3rd LATIF NORTH
March 25th, 2020, Manchester
Council treasury investment & borrowing
The decision leaves Cannock Chase District Council needing to find hundreds of millions of pounds from the 2019/20 budget to refund the retail giant.
Gordon Alcott, deputy leader of the council and portfolio holder for town centre regeneration, said: “Amazon is a highly valued employer in the district but this reduction in business rates is another major blow to this council, following on from the closure of Rugeley Power Station in 2016 which led to a loss in business rates of £1m a year to this council.”
The authority faces the prospect of an immediate payment of £1.2m to cover a refund to Amazon, to cover the period from 2010.
Some of the bill is covered by a provision for business rate appeals in this year’s £11m budget, but the council will need to find an additional £863,000 from reserves to pay the rest, according to Bob Kean, the authority’s head of finance.
Kean said: “We are struggling to get to the bottom of all of the reasons for the decision. We have been trying to find out from the Valuations Office Agency (VOA) but they have not been very forthcoming. They have told us that it is a commercially confidential issue.”
Amazon successfully argued that the rateable value of its facility should be reduced from £3.37m to £2.76m.
A report to the council’s cabinet this month said that Amazon’s appeal was successful on three grounds – the original rating based on rental value, a survey of the building, and the impact of a ratings tribunal decision that ruled that raised chipboard decking should not counted as a mezzanine floor in the rating calculations.
Kean said: “We are in the process of writing to the secretary of state on this. The letter will cover two issues – the way that fulfilment centres are dealt with under the business rates system and the lack of information we have been given from the VOA.”
He said the council has been attempting to build up its reserves in anticipation of a future resetting of business rates top-ups and tariffs, which it expects to negatively impact it.
“If we hadn’t been building up these reserves, we would have been in real trouble.
“The real pain to service budgets from this decision will be felt next year when we try to build these reserves back up again,” Kean said.
He added that the amount the council was liable for had been compounded by the fact that the council is part of a business rates retention pilot, reducing central government’s share of the bill.
Kean also complained that the current business rates system “does not cope with online traders”.
He said: “Amazon is paying £40 a square metre for its fulfilment warehouse. A town centre shop is paying between £150 and £500 a square metre. A large retail outlet is paying an average of £72 per square metre.”
David Parker, director of ratings at property consultancy Savills, told Room151 that the disparities in business rates result from the fact that business rates are based on rental values – higher in town centres.
He said: “This has been thought about for a long time and nobody has come up with a solution. The government has attempted to help high street businesses by providing a set of business rates reliefs but the problem is likely to remain without a radical shake-up of the system.”
An Amazon spokesman said: “Business rates are part of Amazon’s broader £18bn investment in the UK since 2010, which includes creating 2,000 jobs last year, taking our total workforce to 29,500.
“This investment helped contribute to a total tax contribution of £793m during 2018 – £220m in direct taxes and £573m in indirect taxes.”
A VOA spokesperson said: “The VOA is an executive agency of Her Majesty’s Revenue and Customs and is subject to the restrictions on disclosure of taxpayer information contained in the Commissioners for Revenue and Customs Act 2005. This requires the VOA to keep taxpayer information confidential.”
“We cannot comment on individual cases. Our role is to impartially assess the value of property for rating purposes and apply relevant legislation and case law in consistent manner.
“We continually assess our methodologies for valuations to ensure they are effective and up-to-date.”
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