'Broken' business rates regime needs overhaul

MPs are calling for fundamental reform of the business rates system, which they describe as unfair and ‘broken’, and are urging a future government to examine alternatives as soon as possible

A Treasury select committee inquiry said business rates generated £31bn of income for the government in 2018/19. Since being introduced in their current form in 1990, the revenue they have generated has outpaced inflation, and the committee says the government must explain whether this is a deliberate policy.

The inquiry found 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.

MPs said tweaking the current system through an increasingly complex web of reliefs does little to address the negative aspects of the tax and the Treasury should review all business rate reliefs to ensure that they remain necessary.

The committee was presented with numerous alternatives, including a land value tax, online sales levy, profits tax, single consolidated tax and hybrid tax.

It said further work is needed before it could recommend any proposal as a clearly superior alternative, but it wants the government to prepare a consultation on alternatives in time for Spring Statement 2020.

A new business rates appeal system checks Challenge Appeal (CCA) was introduced in 2017 to reduce the number of speculative appeals. However, the Valuation Office Agency (VOA) told the committee that as of March this year, 16,000 appeals made to the 2010 listing remained outstanding, years after they were first raised.

The committee described this as ‘unacceptable’, saying these lengthy delays bring the work of the VOA into disrepute and undermine trust in the UK tax system. It wants the government to reduce the statutory limit for checks and challenges to a maximum of six months.

The report stated: ‘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.’

Alison McGovern, 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. 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.’

Phil Hall, head of public affairs & public policy at AAT, said: ‘Anyone with the slightest understanding of our business rates system would probably agree that the system is not fit for purpose, so it’s no great surprise to see the Treasury committee reach the same conclusion.

‘There has been much debate about scrapping business rates and replacing them with a sales tax; an energy tax, profits tax, turnover tax or land value tax. As AAT made clear in its submission to the Committee earlier this year, each of these alternatives has advantages but they also offer varying degrees of disadvantage.

‘That’s why AAT concluded the only long term solution is for a cross-party, consultative approach to agreeing a fairer, simpler alternative to business rates – something that this Treasury select committee publication could be an important first step in achieving.’

AAT has proposed to improve the regime are moving from three yearly to annual revaluations, removing plant and machinery from the business rates system and changing transitional relief to ensure that before the end of a rating list, businesses can complete the transition, upward or downward, to their correct rateable value.

Impact of Business Rates on Business

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