The BRC this morning unveiled details of its plan, compiled with accountancy firm EY, to reform the burdensome business rates system. Retail Week outlines the options the BRC has put forward.
The proposals cover shifting the basis for taxing property, rewarding employment, supporting successful businesses and modernising the existing system. Yet interestingly, none of the proposals make reference to creating a fairer playing field with online businesses, which pay significantly less business rates currently because they do not hold as much property as bricks and mortar retailers.
Shifting the basis for taxing property
The BRC has proposed that the Government scraps business rates based on ratable values and instead replaces it with a new tax.
It so far prefers a system that would be based on energy usage, which it believes could be delivered through the existing Climate Change Levy. BRC director general Helen Dickinson said it would mean that the new system would not need to start from scratch or cause huge administrative disruption, instead using the structure already in place.
The BRC argues that the tax would encourage energy efficiency. However, this could hit the Treasury’s pocket as the more energy efficient a company becomes, the less they would pay in tax.
Sainsbury’s chief financial officer John Rogers, who worked on the report, admits the Treasury could take a hit at first but he expects the measure to boost the economy and job creation in the same way Government’s cuts to corporation tax has. He also said the Government would be able to reclaim lost revenue by adjusting the multiplier - the mechanism used to calculate business rates.
Rogers said the BRC and EY have also examined reform based on other systems than energy, but declined to say what they were.
Additionally, the BRC is yet to have conversations with a number of trade bodies, notably the energy intensive manufacturing sector, who are likely to be hugely impacted by the change.
The second option is to link business rates discounts with employment and therefore reward those businesses that employ more people. The discount would be capped.
It would be expected to boost employment levels at a time when population growth is soaring. The UK’s population is set to grow to 73 million people by 2037, from 63.7 million now.
This measure has been designed to be used with the existing system and would therefore enable the Government to get it in place rapidly. But there are concerns that this could encourage businesses to employ people when they do not need to.
Supporting successful businesses
The third option would link business rates with corporation tax, encouraging more businesses to pay UK corporation tax to then receive money off their business rates bill. It would therefore help bolster the Government’s measures to stop companies avoiding paying corporation tax.
This option would again be bolted on to the current system and the discount would be capped.
The BRC and EY believe there should be a relationship between corporation tax and business rates, so successful businesses are not hindered if they already pay taxes elsewhere. To ensure small businesses, which pay less in corporation tax, do not lose out, BRC recommends adding in a measure to allow them to gain greater relief.
Modernising the existing system
The final option put forward involves the Government improving the existing system and moving to a more simple banded revaluation. Under the proposal Government would revalue property more frequently, perhaps as often as once a year instead of the present five year time frame, to make business rates charges more accurate. Properties would be banded under categroies including district, use and size.
The BRC also hopes to address the administrative burden on the Valuation Office Agency which has to manage a backlog of valuation appeals.
But the BRC and EY recognise that this option is the least transformative and doesn’t go far enough to reform the business rates system and should therefore be used in conjunction with options two or three.