Influential MPs call for government to rethink broken business rates

MPs say that current business rates system is broken and unfairly penalises small businesses and high street retailers over online competitors

Parliament’s influential Treasury Select Committee has called on the government to examine alternatives to the broken business rates system.

MPs say that the government should examine alternatives to the current system in time for the chancellor’s Spring Statement 2020.

Unfair business rates penalising small businesses are seen as the number one problem affecting 5.7m SMEs.

>See also: Business rates reform key, says Labour business chairman Rachel Reeves

Business rates are outpacing inflation and growing as a proportion of tax paid by small businesses, say MPs, and this unfair system penalises high street shops and sectors like manufacturing over online businesses.

Experts have warned that high streets face the loss of 200,000 jobs unless the Government acts to revive traditional town centres hit by the rise of internet shopping.

The committee concludes that the complex web of reliefs currently available demonstrate that the current business rates system is broken.

However, MPs are unable to recommend any system to replace the current one, from a sales tax to an energy tax, profits tax, turnover tax or land value tax, as all have their own disadvantages.

Business rates generated £31bn of income for the government in 2018-19.

Alison McGovern MP, the Treasury Committee’s lead member for the inquiry, said: “It’s abundantly clear that the current business rates system is broken. The tax represents an increasing burden on businesses, particularly those with a physical high street presence struggling to remain competitive.

“Odd reliefs here and there are nothing more than sticking plasters to a system in urgent need of reform.

“The committee was presented with numerous alternatives to the current system, but none of them had been sufficiently modelled to examine who would be the winners and losers of any change.

“The government must examine such alternatives in time for Spring Statement 2020.”

The Federation of Small Businesses (FSB) says that the current appeal system is failing, with the number of challenges falling by 99.3pc as it could up to 950 days – more than two and a half years – for a small business to have a business rates bill overturned. “Unsurprisingly, this means many small firms give up,” said FSB national chairman Mike Cherry.

The Association of Accounting Technicians (AAT) says that the only long-term solution is for a cross-party consultation as to a fairer, simpler alternative.

In the meantime however there are short-term reforms Treasury can make, says the AAT, including moving from three-yearly to annual revaluations and removing plant and machinery from the business rates system.

Back in August over 50 retailers including Greggs, Boots, Sainsbury’s and John Lewis wrote to Chancellor Sajid Javid asking him to fix the “broken rates system”, which they said was key to boosting investment and revitalising the economy.

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Business rates