Treasury committee requests review into ‘broken’ business rates

Treasury committee requests review into ‘broken’ business rates

AAT specifically referenced in Treasury Select Committee’s report into business rates, which has requested the government to review the system and find alternatives to the tax.

Treasury committee requests review into ‘broken’ business rates

The government must undertake an urgent review to find alternatives to the ‘broken’ business rates system, Parliament’s Treasury Select Committee has concluded.

The influential committee of MPs has been undertaking an inquiry into the business rates system, which the committee has said places an unfair burden on high-street shops and manufacturers in England and Wales, compared with businesses that operate online.

The cross-party group of MPs released their unanimous report, which echoes industry concerns about the system and highlighted the complicated nature of business rate reliefs and a system that punished investment. It also challenged the government on the backlog of 16,000 appeals against business rate decisions and called for the government’s valuation office to hire enough staff to deal with such a workload.

Alison McGovern MP, the Treasury Committee’s lead member for this 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.

“The government must ensure that business rates align with its aim to boost productivity and do not disincentivise growth. The government must examine such alternatives in time for spring statement 2020.

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

Since the system was introduced in 1990, revenues made by the tax have outpaced inflation and generated £31bn in the last financial year for the government. The committee requested the government clarify whether it’s a deliberate policy, and for the chancellor to launch a review and report on alternatives to the system.

Having considered what alternative there is to the current system, McGovern said: “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.”

AAT outspoken against business rates

The Association of Accounting Technicians (AAT) has long been an outspoken advocate for a review into the business rates system, and the Treasury Select Committees report specifically referenced the AAT’s strong support for annual revaluations, as well as its opposition to one alternative that has been suggested—the sales tax.

Phil Hall, Head of Public Affairs & Public Policy at AAT, said: “Anyone with the slightest understanding of our business rates system would probably agree that the system is not fit for purpose, so it’s no great surprise to see the Treasury Committee reach the same conclusion.

“There has been much debate about scrapping business rates and replacing them with a sales tax; an energy tax, profits tax, turnover tax or land value tax. As AAT made clear in its submission to the Committee earlier this year, each of these alternatives has advantages but they also offer varying degrees of disadvantage.

“That’s why AAT concluded the only long-term solution is for a cross-party, consultative approach to agreeing a fairer, simpler alternative to business rates – something that this Treasury Select Committee publication could be an important first step in achieving.”

The association has long held the belief that while a long-term solution is being sought, there are immediate steps that could be taken to improve the current system. Such steps include moving from three yearly to annual revaluations, removing plant and machinery from the business rates system and changing transitional relief to ensure that before the end of a rating list, businesses can complete the transition, upward or downward, to their correct rateable value.

Tax on online sales could ease burden

There has been strong opposition and protests from retailers and other industries for many years about the pressure business rates puts them under. In August, more than 50 large retailers such as Marks & Spencer and Harrods, wrote to the chancellor, calling on him to cut rates to reinvigorate the high-street.

The committee heard how Tesco’s business rates bill had more than doubled over the past 10 years to £700m. The retailer said tax that a tax of 2% on online sales of physical goods would raise £1.5bn a year, which would be enough to cut business rates by 20% for all retailers.

Business rates are charges on most non-domestic properties, like shops, offices, pubs, warehouses, factories and holiday rental homes, and are based on the estimated rental value of that property. Local authorities raise the tax and keep half. The other half goes to the government, who want to increase this to 75% next year, leaving local councils even more reliant of business rates.

Helen Dickinson, chief executive of the British Retail Consortium, said: “Business rates are a significant driver of store closures and job losses, and retailers have been getting a raw deal for too long. We urge political parties to support local shops, local shopworkers and local communities by including these recommendations in their manifestos.”

However, a Treasury spokesman said: “We concluded a fundamental review of business rates in 2016 and have since introduced reforms and reliefs saving businesses more than £13bn over the next five years. We will respond to the select committee’s report in due course.”

The AAT March 2019 submission to the Treasury Select Committee can be read in full here.

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