The Business, Innovation and Skills Committee are right – overhaul Business Rates

March 05, 2014 11:04 AM

The Business, Innovation and Skills Committee joined the growing chorus of Business Rates critics yesterday, describing the tax on business premises “not fit for purpose.” Just last week, the former Chief Executive of Tesco, Sir Terry Leahy said  that the “ancient” system should be reformed and “probably scrapped” because it hasn’t worked for years.

Indeed, in the Mirlees Review the Institute for Fiscal Studies demonstrated some of the shortcomings of a system which discriminates between different sectors (agriculture is exempt for example) and distorts production decisions.

The on-going furore about how much multinationals pay in Corporation Tax is perhaps the best illustration of how the changing, increasingly global economy has rendered some of our old-fashioned taxes obsolete. The committee suggested a separate system of businesses taxes for the retail as so much shopping now takes place online. This may be true, but there are simpler ways to improve Business Rates.

Our 2020 Tax Commission recommended that control of the tax (specifically the multiplier) should return to local authority control and that they should keep the proceeds. This would give local authorities a direct stake in the success of local businesses and encourage competition between authorities.

At the Autumn Statement in December, George Osborne announced a range of piecemeal, targeted measures to give businesses (some more than others) some respite from relentless rises. They usually go up in line with the Retail Prices Index, but inflation was above-target for four years until February, and this has hit businesses hard. In 2012-13 alone they faced a whopping 5.6 per increase, so a rise of 2 per cent instead of 3.2 per cent is scant consolation.

At the budget in two weeks, if George Osborne cannot significantly overhaul the system, he should take action to lighten the load on businesses. He should cut, or at the very least freeze Business Rates.

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