Business rates reform “step in the right direction” but more changes needed

The bill, which was introduced in March, looks to reform the business rates system in England by increasing the frequency of valuations from five years to three and introducing a new business rates relief for improvements to properties.

However, MPs say it does not go far enough, and stronger measures are needed to protect companies, especially small businesses.

In a briefing, the Chartered Institute of Taxation (CIOT) said there is “much to welcome” in the Bill, but questioned whether a new “consolidated”  Business Rates Act, simplifying and laying out all the legislation, would have been better than amending the existing Local Government Finance Act.

The Institute added that while moving to three-yearly valuations was a good step, “even more frequent valuations should remain under evaluation”, while also raising concerns about data provision and penalties.

MPs shared some of these worries. Speaking at the committee stage and Third Reading in the House of Commons on Monday 22 May, Peter Aldous (Con) welcomed the bill but said it should be just the start of a process of “fundamentally reforming” business rates. He backed the views of the CIOT, saying a new consolidated bill would have been “preferable”, adding: “That would have sent the message to businesses both large and small that real change was on the way”.

Aldous said the existing business rates system was “outdated and unresponsive”. He tabled several amendments that would:

• allow for valuations to be carried out annually (instead of the current five- year period and the government’s proposed three-year cycle);
• reduce the “burden” on taxpayers to provide excessive information to the Valuation Office Agency (VOA);
• ensure full guidance is made available to ratepayers, to prevent the less experienced turning to “rogue” rating advisers for help;
• remove business rates from “out of home” advertising such as billboards and digital posters.

Aldous criticised clause 14 of the Bill, which exempts Government legislation from being a qualifying reason for a material change in circumstances. He said this  was “unprecedented and wrong”..

Concluding, Aldous said: “A fully reformed system will mean that businesses will know where they stand, and business rates will not be the elephant in the room. People will be able to invest in, build on and expand their businesses with a degree of confidence, leading to increased profits. The bill makes a start and provides an opportunity for us to turn the vicious circle of business rates into a virtuous circle.”

Sarah Owen (Lab) said that while Labour supports the overall measures in the bill, which would help provide clarity for businesses, it was “still lacking in areas that small businesses are crying out for help with.”

Owen said the “intensified” reporting requirements will hit small businesses such as convenience stores, some of whom may face extra costs by outsourcing their account reporting. She also questioned the administrative and financial impact of administering the new system on local authorities, who she said are “already operating on skeletal budgets”. She added this would be exacerbated by Aldous’s amendment to abolishing rates for advertising, with that money currently going to local authorities.

Owen said despite the reforms laid out in the bill, the overall business rates system is “problematic and outdated”, and Labour would look to abolish it if elected.

Helen Morgan (Lib Dem) said the bill offers “only peripheral changes to an outdated system that does not work for a modern economy”. She backed Aldous’s call for yearly revaluations but questioned why around 700,000 small businesses, who currently pay no business rates, would be required to submit annual reports to the Valuation Office Agency, even when there has been no change to their premises. She said it would add “yet another administrative hoop” for these businesses, without raising any additional public funds.

Morgan also spoke to her own new clause 1, requiring the VOA to report to the Secretary of State on its performance in detail at least once a year, and clause 2, calling for the “discrepancies” between rates on high street properties and out-of-town warehouses to be considered.

Lee Rowley, Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities, said the bill “delivers significant reforms” for the business rate system. He acknowledged calls for a move to yearly valuations, saying the bill’s proposals to move from five to three years is “a step in the right direction”, and that the Government will revisit it “in the coming years”.

Rowley said fundamental changes to the system would require an “extremely significant amount of upheaval”, and moving to yearly valuations would need more data to be provided “in one way or another”. He added that recently revaluations have seen a 20% reduction in average costs for retail premises and a 27% increase in the average costs for online distribution warehouses.

Aldous withdrew his proposed amendment 4 that would abolish liability to non-domestic rates of advertising. Amendment 20, which would exempt small businesses from annual reporting if there is no change to report, was defeated 282-168.

All other clauses and amendments were agreed before the bill was read the third time and passed.

Read the full transcript.