MPs have launched a new inquiry into the fairness of business rates, amid warnings 10,000 stores could close this year unless the government finally fundamentally reforms the system.
The Treasury Committee will review attempts to give councils more power over how rates are spent and alternatives to property taxes, such as imposing a so-called Amazon tax on digital income to level the playing field with bricks-and-mortar companies
“Many high street businesses are struggling to remain competitive. It has been estimated that 10,000 shops will close this year,” said committee chair Nicky Morgan.
“Unless action is taken, closures could continue and job losses may soar.
“Business rates can represent a substantial financial burden on the high street.
“We’ll examine how the current system is working and consider whether an alternative system, for example a land-value based tax, may help level the playing field between retailers.
“At the end of the inquiry, we’ll make a series of recommendations to government on the fairness and effectiveness of the current system, and how it could be improved.”
Read more: Can government deliver an ‘Amazon tax’? Is it needed?
In October Chancellor Philip Hammond announced plans to introduce £900m of business rates relief to help smaller retailers but stopped short of backing an Amazon tax. Ministers fear a new tax on digital companies could act as a deterrent to growth of online businesses.
Organisations including the BRC have fought strongly against such plans, despite calls from the likes of Tesco CEO Dave Lewis.
Reacting to the new inquiry, ACS chief executive James Lowman said: “We welcome this review into the outdated and unfair business rates system.
“The Treasury Select Committee should start by examining how business rates penalise retailers who invest and add new services to their offer. This tax on investment damages our sector and the UK economy.
“Petrol forecourt stores and free-to-use cash machines are particularly badly treated by the current system because they are rated according to a different system which taxes their usage and sales. The impact of business rates on the provision of these vital services should be a priority for the Committee and for the government.”
BRC director of business and regulation Tom Ironside said: “We welcome the announcement that MPs will be looking at ways to fix our broken business rates system,
“With many well-known brands disappearing from the high streets in 2018, the current system, whereby an industry that constitutes 5% of the economy pays 25% of all business rates, is simply unsustainable.
“Retail is undergoing a far-reaching transformation, with technology changing the way we shop. Business rates are a 20th-century system in a 21st-century marketplace, and we hope today’s announcement is the first step towards achieving the fundamental reform that is urgently needed.”
Read more: Retailers call on chancellor to freeze business rates
John Webber, head of business rates at Colliers, also welcomed the review but said such a move could be too late to help many companies.
“Obviously any review that tries to stem the current carnage on the high street is welcome,” he said. “However, this does feel like loud banging on the stable door long after the horse has galloped off down the street.”
“As we have long been saying, the current business rates regime needs a roots-and-branches reform: regular revaluations, a proper review of reliefs, a sensible multiplier, a reform of the appeals system (which ground to a halt in 2017) and a properly funded valuation office, as well as some immediate action - to freeze rates rises this year and to remove the downwards transition that is strangling many of the provincial retail stores, who are paying higher rates than they should be.
“But whatever review takes place, if the government insists on raising the same amount of money by the same group of people (over £7bn of the £27bn of business rates taken are paid by the retail sector), then we will be no further forward.”
Robert Hayton, head of business rates at Altus Group, said he “warmly welcomed” the inquiry.
“The Budget measures last year, whilst great for independent retailers with smaller premises, did nothing to help those major retail and hospitality businesses who are reducing their estates and headcount, often citing high rates as a contributory factor,” he said.
“The long term unfairnesses for those large premises where property values have fallen sharply but are then denied the commensurate tax reduction must be addressed by this inquiry and, hopefully, this inquiry can take the bull by the horns and see how to best level the tax-to-turnover ratio with large online-only retailers, but a land value tax isn’t the answer and is likely to make the system less not more fair.”
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