Retail leaders are pinning their hopes on the 12 December general election to herald meaningful reform of the business rates system, after a damming report by the Treasury Select Committee described it as ‘unacceptable’.
The report also described previous efforts by the government to reform the system as ‘sticking plaster’, raising hopes that it could at last signal wholesale reform, following years of campaigning.
However, it also found there was no evidence that any of the proposed alternatives to business rates, including plans for a profits tax, or an online so-called ‘Amazon tax’, as proposed by the likes of Tesco, were superior options.
It said there was an urgent need for more modelling of such plans and said ministers could not afford to sit on their hands while the high street continued to decline.
The committee urged minsters to explain why the business rates multiplier had been allowed to grow in relation to other corporate tax rates, which were falling over time, leaving the UK with one of the higher property-based taxes as a proportion of GDP.
A 12 December general election comes too late to boost consumer confidence
Members also attacked the red tape of the rates appeals system, which often meant businesses having to wait two years for appeals to be heard. The underfunding and lack of resources at the VOA, which handles the valuation process, also came under fire.
Today’s report was dismissive of previous attempts to soften the blow of rates on retailers.
‘Tweaking the current system of business rates through an increasingly complex web of reliefs does little to address the negative aspects of this tax and simply demonstrates how broken the system is,’ it said, calling on the government to be curious, proactive and creative ‘in exploring alternative options and not leaving it to outside bodies’.
However, the report also found major issues with all the alternatives put forward to date. It said a proposed land tax, basing the rates of land values would be ‘very difficult’ and lead to even more of an appeals logjam.
Businesses had ‘little appetite’ for a sales or turnover tax, it found, whereas plans for on online tax lacked evidence to back them.
‘Businesses deserve a system that reacts to changes in the modern economy,’ the report found.
‘One of the key reasons is that there is insufficient modelling of the viable alternatives, and therefore insufficient data to make a recommendation for change currently. This is true of the online sales levy.’
The most likely suggestion from today’s report appears to be a hybrid tax combining elements of a property tax and a sales tax.
The report said a hybrid system ‘was a potentially viable option in the future that would enable the government to have a tax system that is more reactive to changes in the modern economy’.
But the committee said any alternative needed to be subject to new research.
‘None of the alternative systems presented to this inquiry have demonstrated that they are a clearly superior alternative,’ it concluded.
‘However, it should not be up to external stakeholders to develop and evaluate detailed proposals. We recommend that the government prepares a consultation in time for the next Spring Statement.’
Responding to the report, BRC CEO Helen Dickinson said it gave renewed hope that the £1.3bn burden to retailers could be reformed.
“The general election offers a unique opportunity to address some of the imbalances that have contributed to tens of thousands of job losses for the industry,” she said. “We urge political parties to support local shops, local shop workers and local communities by including these recommendations in their manifestos.
“While the committee is right to recommend that government reviews alternatives to the broken business rates system, it must not do this in isolation. Any review must look at the whole suite of business taxation with the aim of creating a tax system that is fit for the 21st century.”
However, John Webber, head of rating at Colliers International, said he feared plans for reform would be too late for many.
“We applaud the committee for listening to the representations made and it is the duty of the next government to act swiftly on the recommendations,” he said.
“For many businesses and workers, this report will come too late. However, it is possible to turn things around if there is the political will to do so. The alternative is an uncompetitive trading environment and a high street full of empty shops.”
Alex Probyn, UK president of Altus Group, Britain’s largest ratings advisory firm, said rather than bringing rates to the fore, the election could set back reform.
“Meaningful concessions already made by government, such as a move to more frequent revaluations in April 2021, are now in jeopardy because the primary focus will undoubtedly be on Brexit.”
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