Houses of Parliament

Business rates and the charity retail sector

The UK government is currently pursuing a policy of devolving the retention of business rates to local government in England and Wales. This will not be a simple process and the government is currently consulting on how their aims can be achieved.

We have participated in this and used the opportunity to highlight a series of reforms we would like to see in the system of charitable rate relief as the government moves further towards devolution.

Devolved business rates

Firstly, we emphasised how the current devolution of business rates to local pilot pools, in areas like London, has alarmed some people in our sector. The fear is that, if councils were to gain full control over business rates (and begin to rely on this source of finance for the vast majority of their income), many would be disinclined to offer the level of relief charity shops currently rely upon.

These concerns can easily be addressed, and therefore we asked the government makes it official public policy that where business rates retention is devolved to local government the mandatory rate of 80 per cent relief is always maintained.

Business rates relief postcode lottery

In addition to these fears about mandatory business rates relief, our research indicates that charity shops currently operate under a postcode lottery when it comes to discretionary rate relief. Only around one in seven of shops actually receive this additional benefit, and this can lead to anomalous situations where small charity shop chains have shops only streets apart but receive different rates relief – sometimes even within the same borough.

To end this lottery, we argued that it would be much simpler, fairer and more cost-effective to move to a mandatory system of 100 per cent rate relief for all charity shops, recognising their wide social benefits and enabling them to do even more for good causes across the country.

Trading subsidiaries

We know that many charities prefer to operate their retail chains through a trading subsidiary, seeing this as an efficient means of ring-fencing funds and managing risk. Charity trustees are not always retail experts and many prefer to delegate this responsibility to a suitably skilled board of directors on the subsidiary.

Unfortunately, in some cases local authorities see charitable trading companies as commercial enterprises and hence not entitled to rate relief. This is not at all within the spirit of the rate relief legislation and is an unintended consequence of the trading subsidiary system. Therefore, we recommended that the government grant full charitable rate relief however they are run.

Lack of transparency

We highlighted the clear lack of transparency in the current system. When we asked local authorities on what basis they grant additional charitable rate relief to charity shop, we were concerned that the second most common answer they gave was that claims for additional rate relief are considered on an individual basis. When specific criteria are set then each charity shop at least knows where it stands. If they are able to meet the criteria listed, they will get their rate relief as per the stated policy. There may be many charity shops who lose out under such a policy, but at least the process will be clear and transparent.

By contrast, when no policies and criteria are published charity shops have less control over their fate. They may need to reapply for rate relief on an annual basis and have no idea if it will be granted, making budgeting harder.

Therefore, ensure that all rate collection authorities in England, Wales and Scotland publish a clear statement on their website outlining under what circumstances they would grant additional charitable rate relief to charity shops under their jurisdiction. This will increase openness, accountability and transparency.

You can read our submission in full here and send your own to BRRSystemDesign@communities.gov.uk by 11:45pm on 21 February 2019.

Matt Kelcher
Head of Public Affairs and Research
Charity Retail Association