Following reports that the Retail Sector Council (RSC) was preparing to recommend an increase in corporation tax to fund a cut in business rates, Retail Week discovers it’s far from a done deal.

  • Reports suggested RSC was preparing to recommend raising corporation tax to fund business rates cut
  • Sources close to RSC say reports were “premature” and recommendations are “certainly not a done deal”
  • BRC insists progress being to tackle problem of business rates and denies friction within RSC

According to Sky News, a committee of the RSC – the body established by ministers in March 2018 to “inform and challenge both the industry and the government on key issues the industry faces” – had drafted a report urging a 2% increase in corporation tax to finance lower business rates.

The proposal was among “a dozen” likely to be made by the RSC’s business costs working group, which covered “areas ranging from VAT reform to greater transparency around tax and property costs”.

However, a number of sources close to the RSC, which met yesterday, were concerned at the attention the corporation tax change suggestion has drawn, and said that it was “premature” and even “unhelpful”.

“If you’re going to bring down the burden of business rates, what are you going to replace that with?”

One source with knowledge of the talks told Retail Week: “A draft report was discussed yesterday, during which the possibility of raising corporation tax was discussed. But it was decided that more work needs to be done. It’s certainly not a done deal.”

There would be few, if any, in the retail industry who believe that the current business rates system is not in need of urgent reform. The issue is likely to assume even greater importance in the run-up to the Budget, scheduled for March 11.

So, if the RSC working group is not yet prepared to make firm recommendations, then where is it in relation to the single biggest issue facing so many retailers?

Short-term versus long-term

The RSC is made up of 13 members with representatives from retailers, trade bodies and local co-operatives, as well as the Department for Business, Energy and Industrial Strategy (BEIS).

The council is co-chaired by BRC chair Richard Pennycook and the minister for small business, consumers and corporate responsibility, Kelly Tolhurst MP.

BRC chief executive Helen Dickinson also sits on the council and has been leading a working group looking at employment.

A source close to one of the retailers on the council claims that, while an increase in corporation tax was mentioned, it was “firmly rejected by everyone in the room” and says “it’s not on anyone’s agenda in that room or any business leader’s agenda at all”.

The source paints a picture of the council as being unprepared to issue any recommendations ahead of the Budget.

However, a source close to the BRC maintains strides have been made on the problem of business rates: “There are two things here. One is making the case for fundamental reform of business rates. But, if you’re going to bring down the burden of business rates, what are you going to replace that with? That’s the longer term.

“In the shorter term, you can do a number of things – sort out the Valuation Office Agency and the backlog of appeals, do something around transitional relief, freeze the multiplier so bills don’t go up, improvements relief. These are short-term fixes the Treasury could get on with this coming Budget, rather than the longer-term issue.”

Over the longer term, changes to VAT, digital tax, corporation tax increases or other ideas could be assessed.

Retail Week understands that the short-term fixes will form part of the BRC’s Budget submission, which will be supported by some findings from the working group – including a survey of members and the wider industry on cost “pain points”.

Vested interests?

While some are keen to point out that the RSC has been bought together to represent the entire sector, others are critical of its make-up.

One former grocery chief executive told Retail Week: “You’ve got the likes of Amazon sitting on a panel, discussing corporation tax, when they funnel UK revenues through Luxembourg and barely pay any in this country”. 

There has also been some suggestion of disagreements within the RSC. The source close to one member retailer says the corporation tax leak “sets a level of expectation A, that the whole council agrees on these things and B, that they can actually deliver them. It’s a difficult thing”.

“While Boris Johnson abandoned plans to cut corporation tax ahead of the election, convincing the government to increase it would be a different thing entirely”

However, the source close to the BRC poured cold water on suggestions of friction within the RSC.

“The tenor of the conversations around the council isn’t ‘This isn’t going to work for my company’. They are all taking an industry-wide, representative view. I wouldn’t talk about individual companies, but, if I could characterise the conversations, that’s not how they’ve been playing out.”

Vested interests or not, the RSC will need to take a consultative approach when it comes to its longer-term goals of fundamentally addressing business rates.

Fiscal neutrality is important to any Treasury, and while Boris Johnson abandoned plans to actively cut corporation tax ahead of last December’s general election, convincing the government to increase it would be a different thing entirely.

While fundamental business rates reform may still remain an elusively long-term goal, the wider industry will be hoping that the RSC’s shorter-term fixes will bring some much-needed relief in a far faster timeframe.