The government must urgently examine alternatives to business rates instead of “sticking plasters” on a system in need of reform, a group of MPs has warned.
The Treasury select committee said that the tax placed an unfair burden on struggling high street retailers and that the system of reliefs was too bureaucratic and complex to function well. It called on the government to consider alternatives including a land value tax, an online sales levy or a profits tax.
Trade bodies welcomed the findings of the report. They have long called for extensive reform to the system, which they say unfairly penalises companies that need a presence in town centres.
“The business rates system is broken, causing businesses and investment to flatline. It is critical that politicians get a grip of this unfair tax that seemingly can’t be challenged,” Mike Cherry, national chairman at the Federation of Small Businesses, said.
In its findings, the committee criticised the appeal system, which was introduced in April 2017 along with a rates revaluation that forced tax rises on to about half a million properties. The three-stage “check, challenge and appeal” system was intended to reduce the number of speculative appeals, but thousands are still sitting in the system. In March the Valuation Office Agency was dealing with a backlog of 16,000 appeals relating to the revaluation of business rates.
“This is unacceptable. Such long delays bring the work of the VOA into disrepute and undermine trust in the tax system,” the report said.
Although it stopped short of recommending an alternative system, the report called on the government to consider alternatives and to prepare a consultation on the options in time for the spring statement next year.
Business rates bring in about £30 billion a year, but the committee pointed out that revenue had outpaced inflation since they were introduced in 1990.
“The government should explain whether it is policy to allow the growth in business rates to outpace inflation,” the report said. It added that Britain had one of the highest property-based taxes in the developed world as a proportion of GDP. Alison McGovern, who led the inquiry, said: “The government must ensure that business rates align with its aim to boost productivity and do not disincentivise growth. Odd reliefs here and there are nothing more than sticking plasters to a system in urgent need of reform.”
