The Treasury Committee has published a unanimously-agreed report on the Impact of Business Rates on Business.
The Government must explain whether it is deliberate that, since Business Rates were introduced in their current form in 1990, the revenue they have generated has outpaced inflation. Throughout this inquiry, the Committee has been told that Business Rates do not fall upon all business equally, for example, they place a far greater cost on physical businesses, such as those on the high street than those that rely more upon an online presence. 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. Business Rates are an important source of revenue but the Government must explore alternatives to address their negative impacts. The Committee considered alternative options to replace or reform the current system. However, further work is needed to fully model the proposals. The Government should take a deeper look at possible alternatives and prepare a consultation in time for Spring Statement 2020. In the meantime, improvements could be made, including improving reliefs, reducing statutory limits for responding to appeals, and ensuring that the Valuation Office Agency (VOA) is properly resourced.
The report has found that:
- Business Rates generated £31 billion of income for the UK Government in 2018-19. Since Business Rates were introduced in their current form in 1990, the revenue they have generated has outpaced inflation. The Government should acknowledge this and explain whether it is Government policy to allow the growth in Business Rates to outpace inflation. The Government should also set out its views on the fact that the UK has one of the highest property-based taxes in the OECD as a proportion of GDP, and address the impact that the level of Business Rates has on the attractiveness of the UK as a destination for investment.
- The Committee was presented with numerous alternatives to the current Business Rates system, including a land value tax, online sales levy, profits tax, single consolidated tax and hybrid tax. Further work is needed before the Committee could recommend any proposal as a clearly superior alternative to Business Rates. But it should not be left up to business to develop and evaluate detailed proposals. With the changing nature of the economy, and with the high street in decline, the Government must be curious, proactive and creative in exploring alternative options to such an important source of Government revenue. The Government should prepare a consultation on alternatives in time for Spring Statement 2020.
- The number of reliefs that are needed for Business Rates to work add a further layer of bureaucracy to an already complex system. HM Treasury should review all Business Rate reliefs to ensure that they remain necessary. The current system acts as a disincentive to investment, as investment can lead to an immediate Business Rates revaluation based on a presumption of increased turnover. This contradicts wider Government aims to boost productivity and encourage investment in energy efficient technology to lower the UK’s carbon emissions.
- The new Business Rates appeal system Check Challenge Appeal (CCA) was introduced in 2017 to reduce the number of speculative appeals. However, the VOA told us that as of March this year, 16,000 appeals made to the 2010 listing remained outstanding, years after they were first raised. This is unacceptable; the VOA must resolve them urgently. Such long delays bring the work of the VOA into disrepute and undermine trust in the UK tax system. The Government should reduce the statutory limit for Checks and Challenges to a maximum of six months.
- The CCA system has been in existence for just over two and a half years, during which it has remained in beta mode, and has encountered numerous problems. It is unacceptable to bring in a system that creates so many difficulties for taxpayers, for example, ratepayers with multiple properties. The VOA must address these problems. The VOA must also ensure that, if the gap between revaluations reduces from five years to three years will increase demands on the organisation, it is properly staffed to deliver its specialist role.
Commenting on the Report, Alison McGovern MP, the Treasury Committee’s lead member for this inquiry, said “It’s abundantly clear that the current Business Rates system is broken. The tax represents an increasing burden on businesses, particularly those with a physical high street presence struggling to remain competitive.”
“The Government must ensure that business rates align with its aim to boost productivity and do not disincentivise growth. For example, many firms have moved away from being dependent on plants and machinery, which were last re-defined in the system in 1993. It’s unfair on the manufacturing sector, therefore, for their business rates valuation to be included in their essential operating equipment, where other businesses are not equally affected.”
“Odd reliefs here and there are nothing more than sticking plasters to a system in urgent need of reform. The Committee was presented with numerous alternatives to the current system, but none of them had been sufficiently modelled to examine who would be the winners and losers of any change.”
“The Government must examine such alternatives in time for Spring Statement 2020.”
Responding to the Treasury Committee’s report Mike Cherry, National Chairman at the Federation of Small Businesses (FSB), said “As this report rightly sets out, the business rates system is broken, causing businesses and investment to flat-line. It’s critical that politicians get a grip of this unfair tax that seemingly can’t be challenged. As small firms have spent years managing their way through the political uncertainty, it’s time for politicians to show they back small firms by finally tackling the issues that matter to them.”
“There must be a significant reduction in small firms’ rates bills. The high streets discounts rolled out this year have been very welcome. But these will soon come to an end, putting businesses back in the uncertain position they were before – nothing has changed. The relief needs to be extended to 50% or more, making it permanent – and rolling it out to small firms in other sectors.”
“The current Check, Challenge, Appeal system is diabolical with the number of challenges progressing falling by 99.3%. Shockingly, it could take up to 950 days- more than two and a half years- for a business to appeal a business rates bill. Unsurprisingly, this means many small firms give up. As highlighted in the report, this is unacceptable.”
“The ball is firmly in the Government’s court when it comes to putting forward ways to improve the current business rates system. With a general election round the corner, this report sets out a challenge to all parties and candidates as they vie to be the next Government and in the next Parliament.”