Retailers have expressed concern that the new government inquiry into business rates is too siloed, and that focusing on the property tax alone will not help save the high street.
A fresh inquiry into business rates was launched by the Treasury select committee last week to assess how government policy has affected the UK high street. It will review previous changes to business rates, made in 2017, consider the economic justification for a property-based business tax, and assess the viability of the current system.
Retailers are sceptical about its scope.
“It’s not just rates that need to be looked at – it’s a combination of factors, including upward-only rent reviews,” said Touker Suleyman, CEO of Gieves & Hawkes.
“I don’t know where the money is going to come from [if business rates are cut]. My view is that it would be better to add 1% on to VAT, but if business rates remain, they need to be based on turnover so that the smaller guys don’t suffer more than the big chains.”
The managing director of one high street chain agreed that rates were just a small part of the problem, and reform of the regime would offer little relief: “The reality is that a lot of the recent bad industry news isn’t all about rates – it’s about businesses who have too much borrowings, people taking too much money out of them and a decade of internet sales chipping away at them.
“The rates for bricks-and-mortar retailers have got out of kilter. If they could give a little bit of relief, it would help, but I think it will all level out eventually.”
The standard multiplier for business rates, which defines the tax payable for all retailers with a rateable value of £51,000 and above, will rise to 50.4p in England from 1 April, increasing in line with inflation. It will be the first time business rates will have risen above 50p.
One high street CEO suggested a complete disposal of business rates: “They should work out what the effect of cutting retail business rates completely would be. In strict terms the money will go to our bottom line, which the government can tax. If we got rid of business rates, it would be a genuine free market and we could see pureplay businesses opening shops, which would be incredibly invigorating. But the politicians aren’t brave enough.”
Julian Dunkerton, founder of Superdry, called for the government to reconsider how it taxes overseas corporations to lessen the burden on UK retailers: “You cannot have a system where huge multinational companies aren’t paying corporation tax. There needs to be a complete rebalancing of the economy and the government needs to understand that, as a country, we need to be taxing those companies.”
The inquiry is asking for written submissions of evidence before 2 April and will offer recommendations upon its conclusion.
Helen Dickinson, chief executive of the British Retail Consortium, expressed concern that the committee has no powers to enact change: “We need to continue to put pressure on the Treasury to look more widely at business rates rather than just tinkering with things.”
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The changes to business rates
1 April 2017 The Valuation Office Agency (VOA) introduces new business rates valuation, after postponing the update for two years. They are based on property rent values on 1 April 2015
19 April 2017 Select committee for communities and local government examine progress of government on rates reform
April 2017 The VOA introduces Check Challenge Appeal system for rates bills to cut speculative appeals and announces new business rates valuation
June 2018 Business rate appeals fall 90% in the first full year of the new overly complex Check Challenge Appeal system
August 2018 Liberal Democrats call for business rates to be replaced with tax on land values – payable by the owners rather than tenants
January 2018 Nearly 41,000 firms in England and Wales struggle to pay higher business rates in the first five months after its 2017 revaluation
March 2018 Philip Hammond brings forward next business rates revaluation by a year to 2021
July 2018 Chancellor announces he will review digital business tax to offset bricks-and-mortar business rates
17 October 2018 Research shows that a 2.4% increase in inflation will add £186.45m to retailer’s business rates bill next April
29 October 2018 Philip Hammond announces business rates cut by one-third for businesses with a rateable value of less than £51,000 in autumn budget
January 2019 Government announces that digital business tax could be illegal under EU state aid rules