The Treasury select committee has launched a new inquiry to look at the impact of business rates on economic activity and to consider alternative forms of taxation.
The chair of the Treasury Committee Nicky Morgan MP said: “Many high street businesses are struggling to remain competitive.
“It has been estimated that 10,000 shops will close this year.
“Unless action is taken, closures could continue and job losses may soar.
“Business rates can represent a substantial financial burden on the high street.
“The Treasury Committee is therefore launching an inquiry today into the effectiveness and impact of these rates on business.”
The inquiry will examine how changes in business rates since 2017 have affected businesses, including looking at changes to reliefs and allowances, and examining the ability of businesses to pay the tax.
It will look at the fairness of the current system and how far it encourages competition.
The remit also covers looking at the arguments for and against a property-based business tax, the impact of proposed and actual changes to business rates on local authorities and the high street, and alternative forms of taxation, such as the proposed digital services tax.
The inquiry comes against the backdrop of long-term decline in high streets, but the pain of non-domestic rates was made particularly vivid in 2017 when a delayed and substantial revaluation left many businesses facing large increases.
In his 2018 Budget the chancellor Philip Hammond provided some temporary relief by cutting rates by one third for small businesses until the next revaluation.
Speaking to Room 151’s FDs’ Summit in October 2018, David Magor of the Institute of Revenues Rating and Valuation said of the non-domestic rates system: “Is it fair?
“Is it a fair burden on the rate payer?
“Is the assessment methodology appropriate to the 21st century?
“Sadly, the responses to all theses questions are negative.”
At the conference, Magor also pointed to the growing problem of business rates payers finding loopholes: “Slowly but surely avoidance is creating major problems.”
However, reform will not be easy.
Business rates are efficient, i.e. cheap to collect, relatively stable, and have a demonstrable relationship with local authority spending.
Christian Wall, director at local authority financial adviser PFM, told Room 151: “My main concern is that those involved in trying to reform business rates focus on one element, with too many people looking at their own particular concern, rather than considering it as a tax for the funding of local authorities.
“I would be worried we could end up with piecemeal reform, or reform that pays insufficient attention to the linkages with councils.
“Redistribution of business rates is a critical element of the funding system.”
Wall pointed to the huge barriers to reforming local government tax, citing the example of council tax which is based on property valuations now 25 years out of date snd is widely regarded as unfair.
The same would apply to business rates, where changes would similarly produce winners and losers.
“It is inevitable the losers will scream very loudly”, Wall said.
If the tax reflected land values, as proposed by the Liberal Democrats, then retailers on high streets (with higher values) would be disadvantaged against those in out-of-town areas.
London retailers would be taxed more highly than those outside.
The tax would not be related to the ability of businesses to pay, which is a product of turnover and margins.
Wall further pointed out that apart from assuming that landlords have the ability to pay, the proponents of property-based taxation also assume that the tax will not simply be passed on to their tenants.
“Anything to do with a property-based tax will become toxic very quickly”, he said.
A tax on profit or turnover would in theory address this problem, but could be difficult to impose, especially on large online retailers who so far have been good at avoiding paying them, and who can ultimately simply threaten to up sticks to another tax jurisdiction.
