“Confusing, expensive and bursting with red tape”; “outmoded, clunky and regressive”; “archaic and flawed”; “a barrier to growth, opportunity and investment”. These are some of the quotes which I have read recently about business rates.
Critics see it as a punitive tax which stifles economic growth. It is based on a notional rental value of business premises. It therefore takes no account of sales or turnover in the way that other taxes do. Valuations take place on a five yearly cycle. This is inflexible as it means the valuation process can get out of kilter with the economic cycle. By way of illustration The Federation of Small Businesses claims 7% of its members pay more in rates than rent.
There are several ideas as to reform such as replacement with a sales tax or one which is linked to a reward for energy efficiency. The British Retail Consortium proposes that small businesses be exempted from the tax. It argues this would stimulate economic growth especially on the beleaguered British high street. This in turn could allow annual revaluations of larger properties thereby enabling the system to track the economic cycle. Above all the tax needs to be seen as part of the mix in making UK plc competitive along with taxes like corporation tax.
The government has introduced some reliefs and exemptions. But these are piecemeal and temporary. In April it published a discussion paper Administration of business rates in England. However, its proposals represent tinkering with the current tax rather than radical reform.
It is commonplace for politicians to say they want to make British Business competitive and to arrest the decline of the high street. Reform of business rates is one way of doing that.