We acknowledge Government’s commitment that non-residential property should be taxed and have been instrumental in obtaining commitments to take the smallest businesses out of the system all together and switch the annual indexation to CPI from RPI, which should see lower increases in bills from 2020. The Government is also taking steps to undertake more frequent revaluations, ensuring that each property pays a fairer share and modernise the administration of the system and reform the appeals process.
We welcome these commitments, but they do too little to address the fundamental problem – they are not a long term sustainable solution. The retail landscape is changing. Consumers are demanding more service, a more technologically-driven offer and more engagement and personalisation.
Competition is fierce and in a world where shopping is no longer synonymous with physical shops, this tax is no longer fit for purpose. Business rates are deterring investment in local communities, causing shop closures and job losses in vulnerable communities and preventing retailers from delivering what their customers want in an efficient and cost effective way.
In England, the retail industry currently contributes £7.3 billion of rates annually – nearly one-quarter of all receipts – far more than any other industry despite making up 6 per cent of GVA. UK recurrent taxes on immovable property is 3.4 per cent of GDP (highest in Europe) compared to 0.5 per cent in Germany and 2.4 per cent in France (second highest in Europe). A fairer level of property taxation that is competitive compared to other OECD and European countries will encourage growth and ensure continued business tax revenue so we recommend that the Government:
- Switch to CPI in 2017, remove indexation in 2020: CPI indexation is needed now to prevent loss of investment. In 2020 there should then be a flat rate multiplier linked to rateable value which already accounts for inflation and other economic conditions. Rates would then rise and fall in relation to property values based on more frequent revaluations.
- Implement fair and predictable transitional arrangements: As the latest revaluation was delayed by two years, properties eligible for a lower rates bill should benefit more quickly from a more aggressive downward transition or none at all and those expecting rates increases should protected.
- Implement more frequent revaluations from 2020: Three-yearly revaluations will reduce the number of appeals and be more closely aligned to economic circumstances.
- Enable local government to reduce levels: Local government should have the necessary tools to reduce the burden to a third of rateable value. Further powers are necessary to prevent business rates from being one of the few methods of generating revenue. For example, flexibility to set council tax levels and stamp duty retention should be considered.
- Regularly review all reliefs and rates exemptions: There are too many reliefs and exemptions (over £4bn) meaning the businesses responsible for paying business rates are contributing more than their fair share to make up the difference. A review could potentially reduce the multiplier for everyone by up to 20 per cent.