Now fix this (predictable) rate mess
THE slow car crash that is the business rates system is heading towards its final crunch – and it has all been so predictable. The Mail on Sunday has been campaigning for a fundamental reform of this tax system for years. As Chancellor, George Osborne took some steps to ease the burden for the smallest firms, but he failed to instigate a root and branch overhaul.
Belatedly, politicians faced with huge rises in the rates bill for firms in their constituencies have begun to kick up a fuss. This needed to happen sooner. With the valuations done and the appeals system in England curtailed, many firms are going to face inevitably higher bills which, for some, will make the difference between survival or closure.
Scottish firms have also warned they could be forced to shut down by steep rises north of the Border, following a separate revaluation.
The Government has been desperate to point out that most companies will actually see their bills fall under the new valuations. This is true, but hundreds of thousands will see huge rises. Some of the winners will be large internet groups like Amazon, whose warehouses are in more remote areas where business rates will be lower, not to mention the fact that they do not own shops. The losers will be shops in areas were property values have soared and the economy is thriving.
And this goes to the core of the problem. The whole model for business rates – charging companies based on the rentable value of the property they occupy – is simply inappropriate in our new economy. It takes no account of the company’s ability to pay and fails to recognise that property is no longer any kind of benchmark for the prosperity of a business. A local shop may face sharply higher rates because the area has become a bit posher, not because anything has changed about their business. Their only option might be to hike prices.
Like soaring house prices in some cities, the business rates effect is compounding the difficulty ordinary mortals have in being able to afford to live, or work, in some of our cities.
Another side effect of the rates mess has been the proliferation of charity shops on high streets. Charities get a major discount on their rates, so they are often the only organisations that can afford to operate a store. At the very least, the Government needs to follow the Welsh Assembly in allowing for lengthier appeals. This will, in turn, cause a problem for the appeals system already suffering backlogs. But if one benefit can be wrested from the clamour, it must be a complete review of how local business taxes are levied. Some form of local corporation tax may be more appropriate. Business rates are certainly no longer fit for purpose.