All the news and analysis for ambitious company owners Sage boss says axe business rates – they suffocate firms
Footsie giant’s boss demands fairer levy fit for internet era
THE chief executive of FTSE giant Sage has called for business rates to be scrapped and replaced with a sales tax.
Stephen Kelly left his role as chief operating officer for the Government in November 2014 to lead The Sage Group, which sells business services and software to 3million of Britain’s 5.4million firms. Its services and software range from accounting and payroll to customer relationship management and payments.
He told The Mail on Sunday he wanted the firm to ‘be the voice’ on issues its customers face, and blasted the property-based tax system for ‘suffocating’ small firms.
He said the problem was ‘particularly relevant coming up to the Autumn Statement’, which Chancellor Philip Hammond will present on November 23.
‘Any small business on the high street has got an anchor around its neck called business rates, which are horrible fixed costs,’ he said at the company’s headquarters in The Shard, Central London. A hairdresser in Kingston, South West London, might have business rates of £100,000 a year, for example, but ‘when you look at the number of haircuts needed before those business rates are paid, it really suffocates growth.
‘Before the digital age and the internet revolution, it was probably a good way to collect taxes, based on property. But it makes no sense when bricks and mortar have no role, and companies like Amazon compete with small and mediumsized businesses on the high street on a very unlevel playing field.’
Ahead of the Budget in March, Sage president Brendan Flattery said small firms had been unequivocal that rates were their top concern. It was announced in the Budget that more than 600,000 small firms would be given business rate relief.
Kelly said the company has written to Philip Hammond. The former Chancellor, George Osborne, had announced reform, he said, ‘but we don’t want any tinkering around the edges, we want radical reform.
‘The genesis of business rates was in Shakespearian times. It’s a 400year-old property based tax system. How can you have that in the digital age when it’s suffocating small and medium firms? They kick things into the long grass with “consultations”. There’s little political will.
‘The truth is, it’s a very easy tax to collect. Small and medium businesses are very auditable and they are very honest, and the system collects £22 billion a year for the Exchequer. But there have to be more sensible ways to fill that gap that are relevant to the digital age.
‘I’d look at the things you can measure and collect easily, and it’s probably going to be more related to sales to even up the playing field. You’ve got to look at the fact that it is 2016 – it is a digital-based economy. There’s probably a more sensible way you could incur a tax where companies like Amazon and the multinational digital retailers pay their way.’
He also called for companies to spell out how long they take to pay suppliers so that late payers can be named and shamed. ‘Late payment creates antipathy and it undermines most small businesses. This is a constant theme for me because when I was chief operating officer for the Government, one of the things we introduced was that all small businesses got paid within 30 days, and any department that failed to meet that got fined.
‘There are only two FTSE 100 firms – us and Lloyds – which have a policy to pay small and medium-sized businesses within 30 days. In the UK it can be 60 to 75 days before small firms get paid. That is an anchor on growth and it means they have to invest lots of time chasing invoices.’
He explained: ‘I’m not a big fan of driving loads of regulation, because I think we want light touch regulation. But I think companies should have policies where they pay the little guys swiftly. You can change this, because we changed it in Government. There’s no excuse. I challenge every Footsie chief executive to say if you haven’t got your procurement director running policies that have around 30-day payments as part of your way of operating, then it’s disappointing.
‘Why should a big firm withhold payment from a small one? It lacks any moral compass. I would call for companies to codify their procurement policies. I think it will get a groundswell of momentum. What gets measured gets done, and it all comes from the tone at the top.’
Kelly, who has worked for US software giant Oracle, said it is a ‘golden era for start-ups’ in the UK. But he said there is a ‘different DNA, a different culture of ambition’ in the US. He said: ‘The confidence level of the Americans is unparalleled.’
And he complained: ‘A lot of boards in British companies become a victim of the exit conversations they have. If a board spends half its time looking at exits, then its not investing the time it should be on building the company. Why aren’t British firms going out and buying overseas companies as well?’
It’s a 400 year old property based tax system. How can you have that in the digital age?