The business rates system is broken and the government must undertake an urgent review to find alternatives, an influential committee of MPs has said.
The Treasury committee said business rates in England and Wales were high, complex and placed an unfair burden on bricks-and-mortar shops and manufacturers compared with businesses that operate online.
The MPs highlighted a complicated web of business rate reliefs and a system that punished investment. The committee also criticised a backlog of 16,000 appeals against business rate decisions and called for the government’s valuation office to be properly staffed.
Business rates have risen faster than inflation since 1990 and grown as a share of taxes paid by companies, generating £31bn of income for the government last year, the MPs’ report found. The UK has the one of the highest property taxes as a share of output in the developed world, the report said.
The committee called on the government to explain whether this was a deliberate policy and to consider the impact on economic growth. It said the chancellor should launch a review and report on alternatives in the spring.
Alison McGovern, the MP who led the inquiry, said: “The current business rates system is broken. The tax represents an increasing burden on businesses, particularly those with a physical high street presence struggling to remain competitive.
“The government must ensure that business rates align with its aim to boost productivity and do not disincentivise growth. The government must examine such alternatives in time for spring statement 2020.”
Retailers and other industries have protested for many years about the burden imposed by business rates. In August more than 50 large retailers, including Marks & Spencer and Harrods, wrote to the chancellor calling on him to cut business rates to support declining high streets.
The MPs heard that Tesco’s business rates bill had almost doubled to £700m in the past 10 years and that the UK accounts for two-thirds of carmaker Vauxhall’s property taxes in Europe but just 8% of its floor space.
The National Trust said it received almost 1,000 different bills from local authorities. Tesco said a tax of 2% on online sales of physical goods would raise £1.5bn a year – enough to cut business rates by 20% for all retailers.
Business rates charge companies based on the estimated rental value of the property they occupy. Local authorities, which raise the tax, keep half the amount but the government wants that to increase to 75% next year. That would leave councils relying more heavily on business rates despite the impact on the local economy.
Helen Dickinson, chief executive of the British Retail Consortium, said: “Business rates are a significant driver of store closures and job losses, and retailers have been getting a raw deal for too long. We urge political parties to support local shops, local shopworkers and local communities by including these recommendations in their manifestos.”
A Treasury spokesman said: “We concluded a fundamental review of business rates in 2016 and have since introduced reforms and reliefs saving businesses more than £13bn over the next five years. We will respond to the select committee’s report in due course.”