The Government has overcharged businesses around £2.1bn on their rates bill at a time when industry figures are demanding sweeping reforms of the tax regime.
Ministers allow officials at the Valuation Office Agency (VOA), which does valuations on all business premises across England, to take into account potential successful appeals by businesses over their rates bill. But the 3.6 per cent target of the total bill which is put aside for the appeals has not been reached, with only 1.4 per cent of the pot going to winning claimants in the past four years.
Experts estimate £2.1bn over five years is unaccounted for, assuming the number of appeals grows in line with previous years over the next 12 months.
Government rules state that the VOA must remain revenue neutral and cannot make a profit.
Business rates are charged on all business premises and are calculated via a complicated formula based on the value of each site. The VOA does revaluations every five years to keep values up to date.
Businesses have called on the Government to change the system and increase the frequency of valuations as well as make the system easier to understand.
Because the valuation takes place every five years, retailers in poorer regions have seen their rates bill become artificially high due to a fall in property values, while retailers in thriving areas such as Bond Street pay relatively lower rates because the increase in their value has not had an effect.
Campaigners and retailers, who pay the bulk of business rates, want the Government to review the system urgently.
The retail commentator Paul Turner-Mitchell said: “At a time when there is so much discontent surrounding the amount businesses pay in rates, given the legislation, and the fact that the Government must not profit from a revaluation, the money must be handed back.”
Michael Weedon, deputy chief executive of the British Independent Retailers Association, said: “The whole business rates calculation is a monstrous complexity which stretches to 200 pages. The whole system is very opaque.
“One of the ways they can avoid arbitrary calculations like this is getting the valuation right in the first place. If they simplified the system that would reduce the number of appeals. Then they wouldn’t need to come up with these decisions on how much to allow for appeals.”
The Chancellor, George Osborne, has capped the annual rises in rates, which follow the Retail Price Index, at 2 per cent. But the current rateable period has been extended by two years to 2017.
Last week plans to tighten the appeals process were scrapped after industry protests. A detailed review of the rates system is due in three years.