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Enterprise Northern Ireland response to Reforming the Rating System ‘Rates: Rethink’ consultation

Enterprise Northern Ireland

Enterprise Northern Ireland is the leading agency for the promotion, development and delivery of enterprise support interventions in Northern Ireland, dedicated to working with pre-entrepreneurial start-ups and early stage business ventures. The organisation is committed to encouraging and supporting new business formation and supporting business growth through the delivery of small business support interventions for both the private and social economy business sectors.

Enterprise Northern Ireland is the representative organisation for the region’s Local Enterprise Agencies (LEAs), and as such, is at the forefront of a dynamic network which provides aspirant entrepreneurs and existing businesses with access to the premises, programmes, finance and practical support they need to start and grow their business.

Enterprise Northern Ireland has a strong lobbying and campaigning remit. We aim to ensure that the interests of the enterprise support sector is heard in policy debates and consultations, and we work with decision makers to create a better business environment for microenterprises and small businesses.

Enterprise Northern Ireland welcomes this consultation document and the opportunity to contribute to the ongoing review of the non-domestic rating system. For instance, we responded, in January 2016, to an earlier review of the non-domestic rating system and in May 2016 to a consultation discussion paper exploring alternatives to the Small Business Rate Relief Scheme.

In this response, as with our previous engagements, we remind the Department of the unique nature of the Local Enterprise Agency business model, which requires that vacant properties be kept available in order to facilitate business incubation and churn, and to serve business development. We also remind the Department that business rates have a disproportionately larger impact on micro and small businesses than larger businesses. Given the fact that microenterprises and small businesses are the backbone of our economy, we welcome the opportunity to comment on proposals which aim to remove rate relief schemes that have played an important role in allowing these businesses to survive and grow.

According to the Enterprise Northern Ireland ‘Enterprise Manifesto’, high business rates impact on the ability of our members, the network of Local Enterprise Agencies, to deliver upon their objectives of helping business start-up and grow. The last revaluation of non-domestic properties resulted in many LEAs losing tenants who simply could no longer afford to run their businesses from the LEA-managed workspace due to substantial increases in their business rates. Combined with this, the proposed removal of the Small Business Rate Relief Scheme would result in a further dampening of entrepreneurial activity and spirit right across the small business community, and it is unlikely that this would be mitigated by any boost achieved by targeting its replacement to the retail and hospitality sector.

I hope you find these comments useful. Please do not hesitate to contact me if you wish to discuss further any of the points raised in this response.

Yours faithfully

Dr Caroline O’Kane

Information & Policy Officer

Email:caroline.o’

Tel:028 7776 3555

Mob:07841 342456

Web:

Response to ‘Reforming the Rating System’ consultation document
February 2017 /

Working together to make local enterprise happen

Enterprise Northern Ireland Response to the Department of Finance consultation on Reforming the Rating System, February 2017

Introduction

Enterprise Northern Ireland welcomes the opportunity to participate in the Department’s ongoingconsultation around the reform of the rating system. Our response addresses proposals contained within the ‘Rates: Rethink’ consultation paper relating to non-domestic rates, focusing on:

  • Proposals to replace the current Small Business Rate Relief Scheme with a sectorally-targeted scheme;
  • Charitable exemptions;
  • Empty property rates;
  • Industrial hereditaments

COMMENTS ON THE CONSULTATION PAPER:

Proposals to replace the Small Business Rates Relief Scheme with a sectorally-targeted scheme

Enterprise Northern Ireland welcomesthe fact that provision has been made within the consultation document to extend the Small Business Rate Relief scheme for another year. We are, however, disappointed that the long-term policy proposal is to abandon the current Small Business Rate Relief Scheme andreplace it with a scheme targeted solely at the retail and hospitality sectors.

The consultation paper states that the Small Business Rates Relief Scheme, in its current form, is being abandoned as “it provided little economic benefit in terms of increased employment or additional investment. ... awards were too low to affect behaviour and did not lead to any discernible investment outcome, for individual firms or the local economy” (p7). However, the fact that the Small Business Rate Relief Scheme has helped thousands of small and micro businesses better manage cash flow, keep the cost of overheads down and indeed, survive, should surely mean that the Scheme is not considered a failure.

As mentioned in our cover letter, business rates are one of the main barriers to business. Non-domestic rates have a disproportionately larger impact on micro and small businesses than on larger businesses. Rates are related to property costs, and property tends to account for a greater share of the total cost of doing business for those within the microenterprise and SME sector as opposed to large businesses, for whom wage costs are likely to be the biggest burden. High costs of doing business are known to dampen entrepreneurial spirit and in a survey of microenterprises and SMEs undertaken by Enterprise Northern Ireland in 2016, 49% of respondents said that keeping the costs of doing business down was their most pressing business concern. Business rates are already a major obstacle to business success and the proposed removal of the Small Business Rate Relief Scheme will exacerbate this position. For start-up businesses in particular, even relatively small amounts of money, such as those coming from the SBBR Scheme, can mean the difference between survival and failure. The removal of the SBRR Scheme is therefore likely to have a distressing impact on many micro and small businesses, some of whom have lost out and been hit with increased rates bills after the most recent revaluation exercise. It is essential, moving forward, that a mechanism remains in place to give rates relief to the small businesses who comprise the backbone of the Northern Ireland economy, regardless of which sector they occupy.

Enterprise Northern Ireland is strongly opposed to the Scheme being replaced by one which is specifically targeted at the retail and hospitality sectors. We do not believe that targeting resources at these sectors is the most appropriate or effective means of replacement. These are sectors which are already the primary beneficiaries of Small Business Rate Relief, which suggests there is no need to refocus the scheme specifically to assist these businesses to the detriment of all other business sectors.

Enterprise Northern Ireland believe that if a replacement scheme is to be sectorally-targeted that it should be aimed at supporting indigenous start-up/scale-up businesses, across all business sectors. Further, we believe that a start-up business setting up in an Enterprise Northern Ireland-affiliated Local Enterprise Agency should be given some sort of rate relief – perhaps 100% exemption for year 1, staged payments over year 2. This could, over the longer term, generate more income for the Northern Ireland Executive as it may encourage those start-ups who run businesses from home, and therefore pay no business rates at all, to come into an enterprise agency and benefit from the additional support services available.

There are many reasons to support this call. Northern Ireland has historically had amongst the lowest levels of entrepreneurial new venturing and business start-up in the United Kingdom, and the high cost of doing business is a known barrier to entrepreneurial activity. Further, the region has a greater reliance on the micro-enterprise and SME sector than other parts of the UK. The abandonment of the current Small Business Rate Relief Scheme could therefore have a negative impact on future levels of entrepreneurial engagement, business start-up and wider economic growth across all business sectors.

Further, by targeting the retail and hospitality sectors specifically, the Department of Finance and Northern Ireland Assembly would be sending out a message that microenterprises and small businesses in other sectors – those who represent the vast majority of the private sector business base – are simply not valued. The Small Business Rates Relief Scheme, as it stands, sends a strong message of the Assembly’s recognition of the importance and contribution of the small business sector. Removal of the Small Business Rate Relief Scheme across the board may therefore be viewed as a negative, retrograde step in the Executive’s pledge within the Programme for Government to grow business and increase levels of entrepreneurial activity, and lead to challenges that they are not serious about growing the economy or the private sector. Enterprise Northern Ireland believe that targeting start-ups and scale-ups would help encourage greater levels of enterprise and entrepreneurship, and would communicate the Assembly’s appreciation of the contribution of the microenterprise and small business sectors in a tangible and meaningful way.

One strength of the current Small Business Rate Relief Scheme is that it has shown clear benefits right across Northern Ireland and across a variety of industries/sectors. For this reason, Enterprise Northern Ireland also suggest that restricting the replacement Scheme to retail and hospitality businesses would reduce support in geographic areas and business sectors where it is also needed.

The Small Business Rate Relief Scheme has brought real value to the thousands of microenterprises and small businesses who have been able to use the savings to meet overheads or manage cashflow. The Scheme has also helped many early stage start-up businesses, particularly those operating at high margins, to survive their initial trading period. It is essential, moving forward, that a mechanism remains in place to give rates relief to small businesses who comprise the backbone of the Northern Ireland economy across all sectors – not just those within retail and hospitality sectors, and we repeat our strong opposition to removing it in order to focus on retail and hospitality businesses.

Charitable exemption

We welcome that no change is being contemplated within the consultation document regarding the 100% exemption granted to charities in terms of non-domestic rates. As charitable organisations, our members were granted charitable status in recognition of the public service role of enterprise agencies. We are therefore content that no change is being proposed in this area, and that, due to both the public benefit test and to the necessary commercial weaknesses within the enterprise agency business model, LEAs with charitable status will be exempt from paying business rates.

With regard to statements contained within the consultation document relating to charity shops, we note that there are now indications of how much additional revenue would be raised/overall rating burden decreased should charity shops become liable for 20% business rates. This is, we feel, contrary to the approach adopted in earlier Rates Review consultations, when it was stated that a ‘revenue neutral’ approach was being adopted.

With third sector organisations experiencing a reduction in funding from government sources, we believe that any revenue raised from abolishing the 100% rates exemption for charity shops should be focused exclusively on encouraging entrepreneurship within the social enterprise sector.

Vacant properties

Enterprise Northern Ireland and the LEA network are concerned around policy proposals which suggest an end to the initial three month 100% exemption period, and rating relief for all vacant properties being reduced from 50% to 25%.

The consultation document does not specify if the current exemption period granted to Local Enterprise Agencies to Enterprise Northern Ireland for the 12 months after a workspace unit becomes vacant is included in the above policy proposal. However, we would like to take the opportunity afforded by submitting this response to state our reasons why we believe there should be no change to this exemption.

The LEA network serves a unique and distinctive function within the business eco-system, and Enterprise Northern Ireland firmly believes that the special nature of the LEA network warrants the retainment of the exemption for empty properties on LEA-managed workspaces. The business model of LEAs centres around being able to provide businesses with flexibleleases, and vacant properties on LEA-managed workspaces facilitate business incubation, serving an important business development function.

This valuable exemptionwas granted in recognition of the incubation-type model of enterprise agencies, which offer ‘easy in, easy out’ terms in order to attract small businesses starting up in accessible workspaces, and to encourage established businesses to expand and grow. LEAs use vacant workspace to assist new businesses starting-up, encouraging business churn and the movement on of tenants, either for expansion or relocation purposes, or in cases of business contraction or failure. As this is an essential part of the LEA business model, LEAs should not be penalised by having to pay rates on vacant premises that are empty in order to facilitate incubation, tenant turnover and business churn.

Industrial hereditaments

Further, Enterprise Northern Ireland also has concerns around the proposal to remove the current 100% vacant rating exemption from qualifying industrial hereditaments, leading to factory buildings being rated in a similar manner to all other vacant commercial property, ie at 75%.

Many of Enterprise Northern Ireland’s members have attained hereditament status and, whilst appreciating that steps need to be taken to tackle dereliction in general, we believe that vacant properties and qualifying industrial hereditaments within Enterprise Northern Ireland-affiliated Local Enterprise Agencies should receive a special exemption from these proposals. There are many valid reasons for arguing for this exclusion.

The vast majority of Local Enterprise Agencies are non-profit taking charities, operating for the good of local communities by stimulating business start-up. The removal of the industrial hereditament exemption would immediately add many several thousand pounds of costs to the overheads of qualifying Local Enterprise Agencies. This would have a major detrimental impact on these Local Enterprise Agencies, severely limiting their ability to support business start-up or create local employment opportunities.

The work and contribution of the Local Enterprise Agency network cannot be ignored in this discussion, given the potentially catastrophic impact of the proposed removal of these exemptions on the enterprise support sector.

The Local Enterprise Agencies represented by Enterprise Northern Ireland are locally-based not-for-profit companies, and the majority are registered charities. Through our members, we have national reach – all Local Enterprise Agencies deliver a suite of pre-start, start up and business development interventions which provide aspirant entrepreneurs and existing businesses in every constituency, both urban and rural, with access to the premises, programmes, finance and support needed to start and grow their business.

The Local Enterprise Agencies themselves employ more than 250 members of staff and are supported by more than 300 voluntary directors. Staff within the LEA network are highly experienced in delivering a range of business support interventions, are highly motivated and have a demonstrable track record in giving new and existing businesses ready access to the support they need to start-up, scale and create jobs.

The LEA network has an impressive property portfolio across Northern Ireland, providing the right environment for small businesses to start, grow and prosper. On LEA-managed workspaces, more than 1,200 tenants provide employment opportunities for over 5,000 people across Northern Ireland.

The contribution of the LEA network to the Northern Ireland economy is far more significant than their existence as employers and contributors to job creation, important though this is.

Many LEAs operate as social enterprises, and all are locally driven and embedded in their local communities. They work to meet the needs of their local community whilst, at the same time, help to grow a sustainable and dynamic economy, and make a substantial contribution in terms of social capital investments in their local area. Much of the economic development work undertaken by LEAs in terms of addressing issues of unemployment and poverty through the creation of employment, entrepreneurship, training and work experience opportunities, which have the consequence of reducing unemployment and financial hardship, is undertaken free-of-charge for the benefit of the wider community. Our members use their income to further their social aims. These LEAs make a substantial contribution in terms of the social value they provide for the benefit of individuals in their local communities and for wider society. For instance, LEAs provide unpaid advice and assistance to potential entrepreneurs and to existing clients, and the majority have staff and Board members who undertake voluntary roles within the community.

The LEAs play a vital role in connecting entrepreneurs to the right help and support for meeting their needs, and in helping entrepreneurs boost their business and create more jobs for people in the local area. Northern Ireland’s Local Enterprise Agencies are a major regional asset and are an integral part of Northern Ireland’s successful social economy. The uniqueness of their business model, combined with their demonstrable economic and social contribution, must be acknowledged by the Department.