Recently the Government launched their review of the Business Rates System, the British Retail Consortium were quick off the mark to put forward four options for reform, the first three of these seem to address particular business interests rather than taking a wider view of the entire system.

Option 1 – Scrap rates and replace with an extra energy use tax. This would have to be substantial to generate the £26 bn of revenue currently provided by business rates. It would put a considerable burden on much manufacturing which has a high energy use. Would transport energy use be taxed as well?  If so, this could put road fuel taxes at an unacceptable level and lead to leakage into private fuel use.

Option 2 – Allow a discount per employee. This is initially attractive and could reduce offshoring of jobs although it may discourage investment in training and improving the productivity of UK Labour and reward firms that employ large numbers on low wages rather than provide well paid skilled jobs.  The basic level of Rates would have to rise to cover the discounts to be given.

Option 3 - Allow discounts based on corporation tax payments.  Many business rate payers are not subject to corporation tax e.g. partnerships and the self-employed. Business rates are a local tax paid in advance and corporation tax is a national tax paid in arrears so the administration will be very complex and expensive. Public services such as schools libraries and hospitals will be hit as they will not benefit.  As before the basic level of Rates will need to rise to fund the discounts. At present both taxes are progressive but the combination will reduce this and would deal a double blow to a business hit by falling profits which would suffer increased business rates as well.

Option 4 - More frequent banded revaluations.  More frequent revaluations would solve many of the problems currently being felt with the system and would enable many of the complexities of the transitional reliefs and charges to be avoided.  Banded and blunted valuations will be fraught with difficulties with distortions at the boundaries. Conventional valuation would be fairer and probably no more difficult particularly if occupiers of multiple small properties such as advertising rights and mobile phone masts were aggregated and properties with Rateable Values below a certain threshold were permanently exempted along the lines of the current small business relief. This would substantially reduce the number of valuations required and make it much easier to deliver more frequent revaluations.

The current business rates system has its flaws but it does deliver a substantial, stable tax base that is relatively cheap to administer and collect, a fairer system will be more expensive to administer.

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