Are Rates Unfair?

Business rates are a tax on property and collected to pay for public services. They are charged to the occupier or to the owner of the property at a lower level if vacant. Business rates are necessary but like all taxes they should be fair and sufficiently flexible to reflect commercial and economic realities.

A necessary evil

Property rates in some guise or another have been in operation since the 16th century and have grown to be a favourite of governments and policy makers.

Governments like them because they are easy to collect and difficult to avoid which provide an attractive combination for those charged with collection.

In recent years however business rates have increased at a time when other costs have fallen and are therefore out of sync with everyday market realities.

In today’s climate rates as a form of taxation are raised to generate income for local and central government to deliver essential and non-essential services.

Retailers, supermarkets, hotels, offices, licensed premises, warehouses, commercial buildings and even car parks all pay annual rates bills.

There are however a number of reliefs that reduce or negate the need to pay in areas that include freight and transport, vacant buildings and small businesses.

These exemptions are now being reviewed as a way to increase the amount gathered and expand the base of those who pay and will have to pay in the future.

A sense of fairness

Taxation principals are based on the ability to raise money efficiently, flexibly, simply and with certainty in a way that is fair and equitable.

Business rates, depending on your point of view, are an ideal tax as they are predictable and reliable and can be amassed as forecast.

From a revenue perspective, businesses know what to expect and can plan accordingly; from a businesses perspective, they are burdened with an annual and increasing cost over which they have little influence and less control.

Revenue, however, have added another dimension to the review process that dictates all proposals must be cost neutral, which screams of unfairness.

Businesses as a result are caught in a no-win situation where the same or a greater amount of tax is demanded from the same or reducing pool of payers.

The unfairness of such arrangements is clear, particularly at a time when rates account for a disproportionately high percentage of business costs.

Unfairness also stems from the fact that traditional retailers pay significant rates bills even though online stores pay little and receive the same services.

Entrepreneurs and new start-up businesses similarly face considerable rates bills from the outset, which act as a barrier to enterprise.

The balance therefore has tipped in favour of unfairness not least because of the flawed missive from government stating that raising less revenue is not an option, even though flexibility is recognised as a key principle of any taxation system.

SO, business rates are needed to pay for public services but their perceived fairness is stretched to breaking point. And without fairness no tax is sustainable.