Rating the options

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The continuing struggles of some of the UK’s most well-known high street businesses (House of Fraser being the most recent of these to hit the headlines) has led many to once again point the finger at the business rates system as a major contributor to the decline of bricks and mortar stores. Recent reviews of the high street from commentators like Bill Grimsey have suggested scrapping the current system of business rates altogether in favour of something along the lines of a sales tax, and promotional material from the Labour Party is previewing the presentation of a new alternative to business rates at their party conference next month.

One of the examples used to describe the unfairness of the business rates system is the stark difference in rates paid by online businesses like Amazon and their counterparts with physical stores. While it’s clear the rating system needs radical overhaul to be fit for purpose with modern shopping habits and the popularity of online retailers, but I don’t believe a sales-based tax instead is the right answer.

I still vividly remember talking with an MP, many years ago, about the incentives and disincentives associated with a tax we were discussing, and being told in no uncertain terms that the only purpose of a tax is to raise money for the government. The political realities are that business rates are a stable and predictable tax that, like council taxes for a domestic property, are difficult to avoid.  Introducing a different system with extra complications would lead to a problems of tax avoidance, just as we see with corporation tax, especially for large multi-nationals, and no government is going to risk losing this income.

Secondly, a sales-based tax would be problematic for the convenience sector. We know from stores operating on forecourts (which are rated on the basis of turnover) that they pay a disproportionately high amount of business rates compared to the rest of the sector.  A sales- or turnover-based tax for an entire sector which typically has a high volume of sales but low margins could leave convenience stores significantly worse off.

Finally, we know from years of government responses on business rates that the system is a zero-sum game. Balancing a whole new way of collecting business taxes is a monumental task, and as I’ve already mentioned, there’s no guarantee that a new system will benefit smaller businesses.

We believe that the government has an opportunity to work within the current business rates system to make investing easier for businesses. Offsetting investment costs - including security investment - against business rates would encourage long-term growth and overall returns from business taxes.

This could be offset by introducing a new scheme for online retailers to fairly rate their businesses, just as there are schemes for forecourts, pubs and other sectors where rental values aren’t deemed an accurate way of determining rates bills. 

If the government wants to torch the business rates system, that’s fine by us and we’ll help them develop an alternative in its place. But many of the things that would make the system fairer and more effective don’t need a whole new system, they can actually be achieved through evolving the current framework. All we ask is that the Chancellor provides the conditions to help businesses to help themselves when he delivers his Autumn Budget at the end of the year.

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