Senior MP: business rates harm shops more than Hitler’s bombs

Powerful select committee report declares need for a ‘fundamental overhaul’

The current business rates system is not fit for purpose and risks destroying the high street unless the Government takes a more hands-on approach to fundamentally overhaul the way the payments are calculated, according to MPs.

A report out today by the influential Business Select Committee said business rates, which are a tax charged on businesses as a proportion of their rent, are putting off future entrepreneurs from opening businesses.

Adrian Bailey, the chairman of the committee, said: “It’s ironic. Many high streets have been around for 700 years. They survived Hitler’s bombs but the Government’s lack of action is doing more damage than Hitler ever managed.”

The report comes after several months of evidence from retailers, organisations and politicians and was supposed to look at the wider retail industry. However, Mr Bailey revealed: “We didn’t go into the inquiry focusing on business rates, but all the witnesses said it was the biggest problem – all except the Government.

“Ministers refused to address it. It was like the elephant in the room. Every other topic was covered except business rates.”

The report also criticised the Government’s decision to postpone a revaluation by the Valuation Office Agency, which calculates rental values every five years to determine what business rates should be paid. A revaluation was due in 2015 but this has been pushed back to 2017. The Government claimed independent research showed that businesses in London – where the recovery is fastest – would be the biggest winners of the valuation going ahead as usual.

But the committee questioned the independence of the research because it was carried out by a branch of the Treasury.

Mr Bailey said: “Property values and rents have risen highest in London, so delaying the revaluation benefits London to the detriment of struggling areas, not the other way round as the Government are suggesting. Even the research they used had a whole range of caveats.”

Suggestions were made for retailers to have their own form of taxation based on sales, rather than property values. The current system gives online retailers an advantage as they do not have physical stores and the associated overheads.

The recommendations are similar to those set out by the British Retail Consortium, which has offered possible solutions, including replacing business rates with a tax based on the amount of energy retailers use.

Helen Dickinson, director general of the BRC, said: “This report must be the final nail in the coffin of the question ‘Do business rates need to be reformed?’ They do. Business thinks so. A committee of Parliament thinks so. We very much hope the Government will think so too.”

The Government has taken steps to address business rates and has said it will introduce a cap of 2 per cent on rate increases next year. David Cameron has also called for reform. However, the committee said that a one-year cap did not go far enough.