Government pledges to ease business rates burden on high streets

Witnesses:

• Dan Tomlinson MP: Exchequer Secretary to the Treasury at HM Treasury
• Dr Helen Dickinson: Director of Business and International Tax at HM Treasury

Business rates reforms and reliefs

Differential multipliers and a rebalancing toward online giants

The Exchequer Secretary to the Treasury, Dan Tomlinson, characterised the Budget’s announcement on business rates as “significant change”, adding that for the “first time that we have had the possibility within the business rates system to set different tax rates for high street properties and larger properties”. He argued that the changes mean that the gap between the smallest high street properties and the largest properties is 33%— “funded through increasing the multiplier on the highest-value properties”.

He described the 5p reduction in the high-street multiplier as “a significant step,” adding that the government would consider “whether we can continue to deepen those reforms,” subject to fiscal space in future fiscal events.

Possible “slab to slice” reform

The minister confirmed a call for evidence about the further transformation of business rates, explaining that “a few years ago now, George Osborne changed the stamp duty system from a slab system to a slice system… the different cliff edges in the system can lead to a disincentive to invest… because if they tip over the threshold, they pay the higher tax rate on the whole value of their property”. He continued that the government are going to look at slab to slice reform for business rates.

Bobby Dean (Lib Dems) intervened to ask if the Labour government is no longer ‘committed’ to “replace the business rates system”, as was stated in their manifesto. In response, the minister stated: “We are not saying now that in future Budgets the system will be abolished in its entirety, but we are looking at what we can do to significantly lower the burden on high street businesses”.

Dean also highlighted the varying views regarding how business rates should be determined, whether based on business performance or land. The minister clarified that ‘most’ high street businesses are “valued on their floor space”. He continued that the objective is for business rates to reflect rent, and the review intends to “see whether we can more appropriately and more clearly value these businesses in a way that is in line with their rent”.

Reliefs

Acknowledging the complication in the business rates system, the minister said that the government has created five rate bands (up from two) to embed a “permanently lower multiplier” for small and medium retail, hospitality and leisure premises. He further defended Small Business Rate Relief which is set between £12,000 and £15,000, arguing that “a third of businesses across the country have a rateable value such that they are receiving small business rates relief… when you are first starting a business…rather than having to engage with the business rates system from the off,  it is appropriate to wait until some threshold.”

Dean discussed several reliefs that have been introduced to mitigate the potential impact on businesses, saying: “I guess, in a few years’ time… reliefs [will] run out”. The minister explained that, every single year since 2013, there has been a change to the reliefs for businesses on the high street, emphasising that, by passing the legislation last year, the government want to “move away… from the need for temporary and uncertain reliefs in the system”.

Luke Murphy (Lab) expressed concern about the uncertainty for businesses, with the minister hoping that the government will move towards a system where the changes in the multipliers “can be less frequent than every year”, and one that is not tied to “reliefs that can chop and change as much as they have”.

Sustainability of business rates and VOA customer service

The minister highlighted the revenue of business rates, saying that: “I believe that, net, this year coming, they will raise £34 billion… [it] is a very significant share of the tax revenues that we pull in”. He suggested that one of the things that is important in a tax system is to ensure that there is a “broad range of sources” from which “you are pulling revenue in”. He believed that “it is more sustainable… not to be reliant on a small number of taxes”.

Yuan Yang (Lab) asked if the minister thinks business rates is a ‘sustainable tax’ or if another kind of taxation is required to capture where people are shopping now. The minister referenced the digital services tax set at 2% on certain large online platforms and noted that this change has been implemented over recent years. On the direction of travel, he said that “now that we have the ability… to have different tax rates in the system… we can set them at an appropriate level to make sure that the tax system is doing what it can to support the businesses on our high street”.

The chair of the committee, Dame Meg Hillier (Lab), raised concerns about delays experienced by businesses dealing with the Valuation Office Agency (VOA), including instances of backdated business rates bills and lengthy valuation and appeals processes. She asked the minister, as chair of the board at HMRC, now also responsible for the VOA, if these are the issues he would be looking into to address. The minister emphasised the importance of improving HMRC’s customer service, particularly by ensuring “clear timelines for responses” from the VOA. He stated that resource levels are currently sufficient and suggested that past challenges have stemmed more from the VOA’s independence, which made it harder for ministers to hold the agency to account, rather than from a lack of resources.

Pubs and music venues

Catherine West (Lab) expressed concern about an “unfair advantage” for some live music venues, versus other firms on the high street, with Helen Dickinson of the Treasury explaining that there is guidance for local authorities on how to classify different properties for the reliefs based on the characteristics and nature of the properties.

West enquired about why recording studios are excluded from the relief given to live music venues, to which the minister replied: “One of the key things for the relief is that venues are reasonably accessible to visiting members of the public.”

On the business rates support package for pubs and music venues, Luke Murphy said that many high street businesses are looking at these sectors and asking: “What about us”. The minister suggested that 59% of retail, hospitality and leisure properties will see their business rates bills either falling or flat. He argued that only “2% of businesses—11,000 or so of the 767,000—are seeing rateable value increases of more than 100%”.

Dame Harriett Baldwin (Con) challenged whether government communications overstated the notion of ‘permanently lower’ business rates without sufficiently flagging valuation-driven increases. The minister replied that: “I think that the challenge—this is a lesson for government—is that we legislated for an up to 20p reduction in the multiplier”, but chose to go for a 5p reduction for fiscal reasons. He stated: “The fact that we legislated for the full 20p meant that people expected that, but that was not because of words that the government said.” He accepted lessons around clarity, including publishing rateable values earlier than Budget.

The Chair summarised the session saying: “You [the minister] have… highlighted that reform is to come, but will be incremental rather than revolutionary and will depend on the fiscal situation. It is probably fair to say that this Committee’s general view is that a complicated tax is not usually a good tax”.

You can download the transcript here.