high street shops

A radical overhaul of business rates is not on the cards

The government has strongly rejected calls that business rates are not fit for purpose and should be replaced with a new system.

In a response to the business, innovation and skills committee report on the retail sector, published in March, ministers said that while they were reviewing the frequency of rates valuations, changes would be confined to administration of the existing system.

It comes despite huge criticism from leading retailers and the BRC during the long-running inquiry, which led to the committee calling for a “wholesale review” of the rates system, including the possibility of a new taxation system based on sales, rather than property.

But the government claimed such a system would be a case of “double taxation” on consumers already paying VAT.

The committee of MPs had accused the government of ignoring one of the most important recommendations of the Portas Review, which called for “a review of the basis of the calculation of business rates”.

The committee added: “The government must review the whole system — involving local government and retail sector organisations — and not simply tinker around edges by reviewing the administrative details of collecting business rates.”

But in today’s response the government claimed the review being conducted by the Treasury into the administration of the system went far enough.

“The government notes that the select committee suggests considering replacing business rates with a tax on sales,” it said. “The UK has a sales tax in the form of VAT. Introducing a new sales tax alongside VAT would be double taxation which the government wishes to avoid.

“Reforming the basis of business rates would be a significant undertaking. Creating a new tax based on sales is likely to be much more administratively complex and to have higher costs than the current system. Furthermore the government believes that taxes on property are less distortive and less harmful for growth than other taxes.”

James Lowman, CEO of the Association of Convenience Stores, welcomed the government’s move to speed up the frequency of valuations. “A crucial first step in this is ensuring that the rates a business pays are based on accurate valuation of the property they occupy. In the past five years we have seen how far out of step valuations can get and how this can prevent investment in our high streets and neighbourhood parades,” he said.

“We strongly support action to increase the frequency of valuations. This has to be accompanied by action to improve the quality of valuations and reform of the appeal system. We urge MPs and Ministers to take forward this review as quickly and efficiently as possible.”