MPs pressed to scrap business rates to save high streets

MPs pressed to scrap business rates to save high streets

MPs are increasing pressure on the government to consider scrapping the system of business rates that many retailers blame for the decline of the UK high street.

The influential Treasury select committee on Friday launched an inquiry into the impact of recent changes to business rates policy, asking whether alternatives, including a tax based purely on land values, could help high street retailers survive the rise of online competition.

Property-based taxes constitute an unusually large proportion of overall business taxation in the UK, with many businesses paying more in business rates than they do in corporation tax.

“Business rates can represent a substantial financial burden on the high street,” said Nicky Morgan, the Conservative MP who chairs the committee. “Unless action is taken, closures could continue and job losses may soar.”

Business rates raise about £30bn in tax revenues each year, of which £8bn is paid by retailers. They are based on “ratable values” adjusted yearly for inflation, and recalculated every five years to reflect commercial rental values.

Calls for reform of the system have intensified since 2017, when a delayed revaluation left many businesses facing sudden large increases in their tax bill.

The government also plans to give local authorities more control of business rates, raising concerns that cash-strapped councils could look to local businesses to compensate for falling grant funding.

“The current system, whereby an industry that constitutes 5 per cent of the economy pays 25 per cent of all business rates, is simply unsustainable,” said Tom Ironside, director of business and regulation at the British Retail Consortium.

Philip Hammond, the chancellor, gave small retailers a reprieve in last year’s Budget, cutting their rates by a third until the next revaluation.

Paul Johnson, director of the Institute for Fiscal Studies, has argued that this kind of relief would help individual businesses in the short run, but make little difference to the high street’s survival. Cuts to business rates would simply lead to higher rents, mainly benefiting the biggest landowners, he said.

Mike Cherry, chairman at the Federation of Small Businesses, said that despite reforms since 2016, the tax “remains regressive and not linked to ability to pay”.

The IFS is among institutions that has argued for a more fundamental reform of the system.

“It would be much better to have a tax on the value of the land on which the business sits rather than the rental value of the property,” Mr Johnson wrote, noting the difficulties the current system posed when buildings fell vacant.

Vince Cable, the Liberal Democrat leader, also called last year for the system to be replaced by a levy that would tax only the land value of a commercial site, and not the value of buildings.

The manufacturing and technology sectors would benefit most from such a change, he argued, and retailers in the most deprived areas would see their bills fall, while shops in pricier areas paid more.

The Treasury select committee plans to explore this idea, along with other alternatives such as the Treasury’s proposed digital sales tax.

It will also look at the impact of business rates on rental and property prices, and on how change to the system will affect local authority finances.

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