Business rates system broken say MPs

The business rates system is “broken” and needs to be reformed for the benefit of councils and businesses alike, according to a report from the treasury committee released today.

It revealed that the tax generated £31bn in the UK in the last financial year, with revenues rising faster than inflation.

MPs also found councils have applied business rates reliefs inconsistently and urged the government to create a “single comprehensive” guide on how they should operate.

The report acknowledged the government’s plan to increase councils’ retention of business rates from 50% to 75% – but this move, which was meant to start in April 2020, has already been pushed back by a year.

“Any reform of the system should have particular regard both to the need to maintain the total income for local authorities, and to keep the link between individual authorities and the current and potential new businesses in their areas,” it said.

Alison McGovern, Treasury committee’s lead member of the 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.”

Commenting on previous attempts to improve the business rates system, she said: “Odd reliefs here and there are nothing more than sticking plasters to a system in urgent need of reform.”

The committee has heard arguments for alternatives to business rates, such as a ‘land value’ tax – a levy on the land a property exists on rather than the property itself. Another suggestion has been to have online sales levies as the system places a “disproportionate burden” on bricks-and-mortar high street shops compared to online businesses.

However, McGovern said that alternatives had not been “sufficiently modelled to examine who would be the winners and losers of any change.”

The report concluded that it should not be up to “external stakeholders” to develop and evaluate detailed proposals for a new system. Instead, the government should prepare a consultation on the business rates system by the next Spring Statement, it said. …”

Source:Public Finance (pay wall)