In a report issued today, the Commons business, innovation and skills committee argues that a tax based on the rateable value of property is no longer appropriate in a world where so many sales transactions are carried out online.
Committee chair Adrian Bailey said the current system of business rates comprises one of the highest forms of local property tax in the European Union and put many shops at risk of going under.
‘Since the system was created the retail environment has changed beyond all recognition,’ he said.
‘The government’s consultation on the administration of business rates [published last month] at least acknowledges that change is needed. But this is a time for wholesale review and fundamental reform, not for tinkering around the edges. Business rates are not fit for purpose and minor administrative changes will not change that.’
Bailey said that, if the government were serious about transforming local high streets into thriving community hubs, then it needed to address the barriers to innovation presented by business rates.
‘The government’s retail strategies are full of warm words that fail to address the most debilitating levy on existing businesses and the most crucial deterrent to new businesses appearing on the high street – business rates. Fewer strategies are required; simple, decisive action is needed.’
Among the report’s specific recommendations is a six-month business rate amnesty for businesses occupying empty properties and a review of whether the tax is better linked to the Consumer Prices Index measure of inflation or the Retail Prices Index. Annual increase should be linked to as 12-month average of either CPI or RPI, with a cap set at 2%, the committee said.
Adam Marshall, executive director of policy at the British Chambers of Commerce, agreed that fundamental reform of business rates was needed.
‘But politicians must remember that the business rates system is failing all of our businesses – not just the high street. Businesses are suffering from this pernicious tax, which gobbles up huge amounts of cash before a company even turns over a single penny, in city centres, industrial estates and office parks in all parts of the United Kingdom,’ he said.
‘We need thriving high streets, but business rates are also the reason many manufacturing and services companies put off investment and hiring decisions because their rates bills are just too high.’
A government spokeswoman said: 'The government’s long-term economic plan is working, delivering economic security to hardworking people. A key part of this plan is supporting business which is why we have taken a series of steps to help local firms and shops with their business rates including announcing over £1bn of business rates support at Autumn Statement 2013.
'Half of this will go to supporting the retail sector through a £1,000 business rates discount for shops, pubs and restaurants and a temporary reoccupation relief to help bring empty shops back into use. We are also undertaking a review of business rates administration which will look at longer-term reforms to make the system more transparent, efficient and responsive to economic circumstances.'
