By Stuart Hicks, Director
The Treasury Committee yesterday published its unanimously agreed report on the Impact of Business Rates across England and Wales and it’s pretty damning.
Retailers, lobbyists and businesses alike have been waiting on this review for some time and it includes some rather scathing comments on the present system.
The report runs to 55 pages and a total 37 recommendations so I won’t list them all, but there is a link below if you’ve nothing better to do this weekend.
However, just so this isn’t the shortest article ever posted on PlaceNorthWest, here are a few of the more salient points and recommendations made, in no order of priority.
Overall, since business rates were introduced in their current form in 1990, the revenue they have generated has outpaced inflation. They are also growing as a proportion of the total tax paid by businesses. In 2018–19, £31bn was raised through non-domestic property rates, making it one of the seven highest grossing taxes in the UK.
- The committee asks the question is this a deliberate policy of the Government and if so what is it trying to achieve? Members also make the point that business rates don’t fall upon all businesses equally and tweaking the current system through an increasingly complex web of reliefs does little to address the negative aspects of this tax and simply demonstrates how broken the system is.
- They list several inherent weaknesses: business rates reliefs are intended to reduce the financial burden placed on businesses but instead they are arbitrary, administered inconsistently and add complexity to a system that is already onerous.
- The proliferation of reliefs, seen as necessary to make business rates work, show the strain the system is under. Outdated or unneeded reliefs should be removed. Other reliefs should be improved; for example, transitional relief should be redesigned to ensure that, before the end of a rating list, businesses can complete the transition, upward or downward, to their correct rateable value.
- The VOA needs to resolve its large caseload of open appeals relating to the 2010 listing. It also needs to provide a better service for businesses trying to use its Check Challenge Appeal process for current valuations. They called CCA a “reasonable attempt” to address weaknesses in the previous appeals process but it is hardly a ringing endorsement.
- The current approach to business rates acts as an immediate significant disincentive to investment. Such an approach contradicts wider government policies such as reducing the UK’s carbon emissions through investment in greener technologies or improving productivity. It suggests that HM Treasury may wish to “consider lessons learnt by devolved nations” when they have made similar adjustments to their business rates system.
- The classes of plant and machinery that are included in the business rates calculation were last re-defined in 1993, when the UK economy operated very differently. Many modern businesses have moved away from being dependent on plant and machinery, making it unfair on the manufacturing sector for their business rates valuation to include their essential operating equipment.
- It is too easy for businesses to make speculative appeals and created an unsustainable workload for the VOA and it states it is “unacceptable” that there are still appeals outstanding from the 2010 listing, years after the appeals were first raised. The committee says no business should have to wait up to two and half years for their appeal to conclude and recommend that the Government introduces new secondary legislation to reduce the statutory limit for both Checks and Challenges to a more reasonable timeframe, preferably a maximum of six months each.
- The overwhelming evidence is that the VOA’s systems do not work for ratepayers with multiple properties. There continues to be a “disconnect” between how the VOA and the users of the CCA. At present, there is a significant level of distrust of the VOA’s valuation techniques in some business sectors.
- Looking at alternatives to the current business rates, they acknowledge that a theoretical land-based tax is appealing as it charges landowners rather than tenants. However, it did note implementation would be very difficult, attracting more appeals. A land value tax would incentivise high-density usage, and there could be instances where this wouldn’t be desired, such as green spaces.
- A single consolidated tax would not appear to present sufficient solutions to the issues being experienced by the current business rates system. Nevertheless, a single consolidated tax would be simple, it is something that some small businesses want, and, if it was designed to be revenue neutral.
- A hybrid system is a potentially viable option in the future that would enable the Government to have a tax system that is more reactive to changes in the modern economy. However, to be assessed further it needs a comprehensive plan outlining how a hybrid tax would work with a clear blueprint to take it forward.
- A number of alternatives to the current business rates system were presented and an equal number of reasons also seen as to why England and Wales were not yet ready to move to them including insufficient modelling of the viable alternatives.
One of the final recommendations is for the next Government to prepare a consultation in time for the next Spring Statement.
So, 50+ pages later, and we are back to another consultation. Déjà vu anyone?
You can read the full version here: https://publications.parliament.uk/pa/cm201920/cmselect/cmtreasy/222/222.pdf