Are Business Rates Fit For Purpose?

The government defends its review of the rates system and insists it must collect the same amount of money or more from the business sector. But is the system fit for purpose or is it time for a serious review?

Fair or unfair

Business rates are carefully calculated on the rental value of a property and eagerly applied to all eligible businesses in the country.

The review of the business rates system is usually carried out every five years although it has been seven years since the last review as it was postponed in 2015.

The length of time since the last appraisal is a worry as property valuations have changed considerably since it was carried out.

There is also unease about the protracted process of appeal, as it will be more difficult that in the past not least because of the current backlog.

The money collected from business rates goes directly to central government and a percentage is then distributed to local councils to pay for local services.

Some businesses will, of course, see their rates remain the same or fall depending on location and the luck of the draw in the mash-up that is the review process.

Given the increased cost of business rates and its growth as a percentage of overall costs, it is vital that the review is seen to be fair to all types of firms.

Businesses, however, argue that because government is intent on collecting as much money as possible the firms that pay more will effectively subsidise those who pay less.

Amazon wins

One area where the rates system is seen as particularly biased is in relation to out of town online retailers such as Amazon, as they are likely to pay less after the review.

Businesses also highlight the difficulty of passing any increase on to customers, as it will lead to job losses or in extreme cases closure.

Many independent town centre retailers will be hit badly, as property values have risen and such values are used to fix the level of rates.

Government argues that businesses that pay extra are located in busy areas or busy sectors and so can afford to pay more.

They also highlight the reliefs available to small businesses depending on the valuation of the property.

But they fail to highlight that those who benefit from lower rates will have to wait, as any gains will be phased in over time.

The main problem with the review, however, is that it doesn’t allow for discussion on whether or not the overall system is fit for purpose in an age dominated by the Internet and an explosion in online sales.

A further difficulty arises as rates were never meant to be as high relative to rents and other costs and so have become a punishing tax for many businesses.

So, by any reasonable measure the business rates system is unfit for purpose and should be replaced by a model more apt for the digital age.