16.03.15
Treasury launches ‘radical’ review of ‘clunky and regressive’ business rates
The government has launched a “radical” review into Business Rates in England to look at making changes to a system that the CBI calls “outmoded, clunky and regressive”.
The Treasury said that the review, first announced in December’s Autumn Statement, "paves the way for changes" to the current system, which has been in place since 1988.
However, the outcome is expected to be fiscally neutral, meaning that the total sum collected from businesses will not change. It is due to report back in time for next year’s budget.
Chief secretary to the Treasury Danny Alexander said: “Our system of business rates was created nearly 30 years ago. Since that time, the worlds of commerce and industry have changed beyond recognition. I’ve been impressed by the representations made by the business community and I know that business rates are a considerable cost.
“The government has taken measures to help businesses by capping rates and introducing reliefs for smaller businesses. But now the time has come for a radical review of this important tax. We want to ensure the business rates system is fair, efficient and effective.”
The review is set to look at how businesses use property, what the UK can learn from other countries about local business taxes, and how the system could be modernised so it better reflects changes in the value of property.
John Cridland, the director-general of the CBI, said: “The current system of business rates is outmoded, clunky and regressive and it's holding back the high street. That’s why we’ve been calling for a wholesale review of the system.
“This review provides an opportunity to go much further and we’ll be making the case for removing the smallest firms from paying business rates completely, linking rates to CPI rather than RPI and introducing more frequent valuations.
“This would go a long way to achieving a more competitive business rates regime that incentivises business investment and supports the high street.”
The rates paid by English businesses are the highest of any EU country and can be a company's biggest expense after wages and rent. Current valuations are still based on property prices in 2008, before the economic downturn hit the value of commercial real estate, as the government postponed a revaluation scheduled for last year.
John Longworth, from the British Chambers of Commerce was pleased to see the review but added that businesses believe actions speak louder than words.
“Unless a root and branch reform of business rates is delivered at Budget 2016, business will regard this as a missed opportunity to tackle a huge brake on investment and growth,” he said.
The review will be published on the Treasury’s website on 16 March and will seek answers to the 15 questions:
- What, in your view, does this evidence suggest about the fairness and sustainability of business rates as a tax based on property values?
- What evidence is there in favour of the government considering a move away from a property based business tax towards alternative tax bases? What are the potential drawbacks of such a move?
- If business rates remain a property tax, how do you suggest business rates could take into account the individual circumstances of businesses such as their size or ability to pay rates?
- What evidence and data can you provide to inform the government’s assessment of the trends in use and occupation of non-domestic property?
- Is there evidence to suggest that changing patterns in property usage are affecting some sectors more than others?
- What examples from other jurisdictions and tax systems should the government consider as part of this review? What do you think are the main lessons for the business rates system in England?
- How can government use business rates to improve the incentive for local authorities to drive local growth?
- What impact will increased local retention of business rate revenue have on business growth? What will the impacts be on local authorities?
- What other local incentives should the government consider to further incentivise business growth?
- Should business rates be reformed to make them more closely reflective of wider economic conditions and if so, how?
- How does the proportion of total operating costs accounted for by business rates vary by the sector and size of a business?
- What is the impact of the business rates system on the competitiveness of UK businesses? Are there any particular impacts on SMEs?
- How could the government better target support for SMEs given that the size of a company may not be reflected in the rateable value of a property it uses?
- Should investment in plant and machinery, energy efficiency improvements or other similar property improvements be treated differently by the business rates system? If so what changes could be made?
- What evidence and analysis should the government take into account when evaluating the impact of and any changes to the range of reliefs and exemptions present in the business rates system?
(Image source: Adam Tinworth)
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