In his Autumn Statement, the Chancellor extended business rates relief to small businesses and yesterday it was announced that businesses hit by the UK floods will be eligible for rates relief for a period of three months. While these moves are welcome, many property and business figures are calling for a root-and-branch review of the system.
These calls are likely to grow louder now that it has emerged that, in 2015, government income from business rates will exceed the country’s council tax collections — making unrepresented owners and occupiers pay more to the Exchequer than those with the right to elect their government.
Now one commercial property consultancy is urging the Prime Minister to follow-up on his promise to look at business rate reform by suggesting a number of economy boosting changes.
“One of the most enduring concerns of business leaders is the increasingly disproportionate profile of business rates as an element of local taxation,” explained Chris Wilkinson, of Lambert Smith Hampton’s Newcastle office. “In today’s recovery economic environment, rates take most of the burden and individual rate demands are often greater than rent because rating assessments have to be based on rental values from early 2008.”
Any long-overdue business rate reforms should primarily assist economic growth and encourage regeneration. “More than anything the changes need to be logical and palatable,” he added. The six changes his company would most like to see adopted are:
“These changes are not insignificant,” said Wilkinson, “but they are pragmatic, achievable and will go a long way toward simplifying the system. They will also reduce costs and ensure that business ratepayers achieve representation.”
The latest body to add its voice to calls for a business rate revamp is the Institute for Fiscal Studies. At the recent launch of its 2014 “Green Budget” one of the think tank’s economists claimed the “temporary tinkering” of business rates by the Government was only storing up problems for the future. “This is clearly no way to make policy,” said Helen Miller. “The continuous extension of temporary policies raises concern that they will be hard to reverse, so they’ll end up inadvertently changing the tax system.”
The IFS wants business rates — which already equalled council tax last year by raising £26.1bn — to be replaced by a land value tax, bringing an end to companies being penalised for improving properties.
“Short of such a radical revamp, business rates should be reformed so that rateable values reflect as closely as possible the up-to-date market rental values of properties,” added Miller.
She also suggested the need for an index of local property prices to help decide rate increases. The Government’s policy of handing money generated by business rates back to local authorities in a bid to boost development was, she said, welcomed by the IFS but also needed upgrading — “Authorities will keep the revenue until 2020 but that means, by the time 2019 arrives, they’ll have very little incentive to boost development.”
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