Business Rates: Improving an Aged System
December 2, 2019
The RICS has today undertaken a review of each of the main political parties’ manifestos when it comes to Business rates. Here is the article in full.
Business rates are a contentious tax that can have a profound effect on how companies operate within the UK. Companies of all sizes cite business rates as one of the costs that reduce competitiveness and force them to hold back expansion. In a challenging economy, this tax is one of the costs that can ultimately lead to business closure, resulting in a loss of jobs and local services.
The current system is complex and opaque, which creates additional costs and frustration for operators at all levels. The ‘check, challenge, appeal’ system introduced following the 2017 rating revaluation has been poorly implemented. It has proven problematic for ratepayers and their advisers to navigate and has actually created an impediment to understanding the evidence on which assessments are based.
In their manifesto, the Liberal Democrats pledge to scrap business rates entirely and replace it with:
A Commercial Landowner Levy based solely on the land value of commercial sites rather than their entire capital value, thereby stimulating investment, and shifting the burden of taxation from tenants to landowners.
Unveiling the policy at the recent Confederation of British Industry (CBI) conference, Jo Swinson said that abolishing business rates would cut taxes in 92 per cent of local authority areas and help rebalance the UK economy, while shifting the tax burden from tenant to landlord. While we applaud the Liberal Democrats intention to tackle the business rates system, we would also advise a cautious approach. There is a significant risk that introducing an entirely new system could have unforeseen consequences. RICS believes that the Liberal Democrats’ plan to scrap business rates entirely could pose significant risk.
Labour also pledges to introduce a significant shift to the tax system:
‘Business rates are causing real issues for high-street retailers and others. A Labour government will review the option of a land value tax on commercial landlords as an alternative and develop a retail sector industrial strategy.’ Further evidence of the likely direction of a Labour government policy can be garnered from the September party conference, when shadow business secretary Rebecca Long-Bailey said Labour will introduce annual revaluations of business rates and exempt new plant and machinery from revaluations, along with a fair appeals system. She added that a review of the business rates system to bring it into the twenty-first century would be conducted.
And, at a recent speech to the CBI, Labour leader Jeremy Corbyn announced that when in power the party would reform business rates ‘because we know the damage they’re currently doing to our high streets and communities’.
These statements must be read alongside the Labour report Land for the Many, published earlier this year, which stated that ‘Business rates should be replaced with a Land Value Tax, calculated on the basis of the rental value of local commercial land.’ It is important to pinpoint the emphasis on commercial land and landlords in these statements; when shadow chancellor John McDonnell previously floated the idea of a land value tax it was criticised as a ‘garden tax’ and quickly seen as a potential vote loser.
The Conservative party manifesto, perhaps as expected, outlines the least radical position. The party position is to reduce business rates, which:
‘will be done via a fundamental review of the system. As a first step, we will further reduce business rates for retail businesses, as well as extending the discount to grassroots music venues, small cinemas and pubs. That means protecting your high street and community from excessive tax hikes and keeping town centres vibrant.
This follows last week’s pledge from Boris Johnson to increase the employment allowance, which will provide a tax cut of up to £1000 to half a million businesses. The party has also recently announced its intention to increase the business rate discount for smaller firms from 33 percent to 50 per cent.
Business rates raised some £25bn in 2018-19 which is essential to fund a wide range of local authority services. Any future system must be essentially revenue neutral, so that there are no shocks that could create extra costs and potentially job losses. Any new system would need full consultation with all parties working with or affected by business rates, for instance rating surveyors, land owners, landlords, tenants and communities.
As the chief organisation for the valuation of land and other assets, RICS, especially with its Royal Charter, public interest remit and commitment to the highest standards, must be fully involved. RICS calls on any future government to fully commit to fixing a system which has penalised a significant number of small and large firms for an extended period. We welcomed the October 2019 cross-party Treasury Select Committee’s report Impact of business rates on business, which backed our historic calls for a root and branch reform of the business rates system in England and Wales. The next government must guarantee that the momentum behind updating our creaking business rates system will not be lost.