Proposed business rates replaced by VAT – not thought through

Stuart Hicks, Manchester Office, Director - Dunlop Heywood

By Stuart Hicks, Director

A Tory MP is calling for business rates to be scrapped and replaced by an increase in VAT in order to save high street businesses.

Kevin Hollinrake (Thirsk and Malton) said increasing VAT from 20% to 23% would fill the £30 billion annual gap created from the abolition of business rates.

He is calling for immediate change as he introduces his Abolition of Business Rates Bill, saying the legislation would replace business rates completely with an increase in VAT … “Thereby fundamentally levelling the playing field between online and our precious local high street businesses.”

This flies in the face of his party’s general election manifesto pledge not to increase VAT during this Parliament but Hollinrake claims the scale and the pace of change to businesses today necessitates a new approach.

He went on: “Business rates as they are today were designed for a bygone era, a long time ago where business went hand-in-hand with high street premises. Covid has quickly made that time seem even more distant and the trends already in train have been accelerated due to our forced house arrest. Online sales now account for 33% of all retail sales, up from 20% only a year ago.”

What Mr Hollinrake hasn’t thought through is how the new system and funding work in respect of all occupations, not just retailers or businesses. What about the Police, libraries, hospitals etc? The hike in VAT would have to be huge and essentially passing on the tax burden to every member of the general public regardless of income or circumstances. Imagine having to sell the fact that Tesco is saving hundreds of millions of pounds in business rates each year while their shopping bills, car service and house repairs go through the roof. Furthermore, there would be no certainty for Local Government funding as VAT would flex depending on the economy. In recession VAT would have to be increased still further…

Hollinrake mentions a small increase which just wouldn’t fill the hole left behind by business rates. To couch the increase in these terms is disingenuous at best.

By all means let’s have a serious debate about the reform options, and let’s do it quickly, but headline grabbing stunts like this are merely that and act as a distraction not a credible solution. The Bill was introduced without a vote, with a second reading scheduled for today. It has little chance of making further progress in its current form without Government backing which is highly unlikely as we wait for the outcome of the latest business rates’ review.