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March 07, 2014 - Rachel Miller

Business rates "not fit for purpose", say MPs

Business rates "not fit for purpose", say MPsA government Select Committee report on the retail sector has called for radical changes to business rates, describing the current system as "one of the principal threats to the survival of existing retail businesses in the high street".

Produced by the Department for Business, Innovation and Skills (BIS), the report concludes that business rates are also "the biggest obstacle to new retail businesses starting up".

Committee chairman, Adrian Bailey MP, said: "Business rates, in their current form, are not fit for purpose. The government needs to carry out a wholesale review of the current business rate system."

He added: "While this is a matter for the Treasury, the Department for Business, Innovation and Skills needs to play a leading role in that review, to reflect the needs of businesses. It needs to impress upon the Treasury and the Department for Communities and Local Government the importance of the retail sector as a driver of economic recovery. This is especially pertinent for small and medium-sized businesses."

The report recommends that a review of the business rate system should consider:

  • whether retail taxes should be based on sales, rather than on property;
  • whether the retail sector should have its own form of taxation, calculated in a different way from other businesses;
  • how frequently the revaluation of business rates should take place.

Dr Adam Marshall, executive director of policy at the British Chambers of Commerce (BCC), said: "It is good to see Parliament recognise that Britain's business rates system is broken and in need of fundamental reform. But politicians must remember that the business rates system is failing all of our businesses – not just the high street.

"Businesses are suffering from this pernicious tax, which gobbles up huge amounts of cash before a company even turns over a single penny, in city centres, industrial estates and office parks. Business rates are also the reason many manufacturing and services companies put off investment and hiring decisions."

Helen Dickinson, director general of the British Retail Consortium said: "This report must be the final nail in the coffin of the question: do business rates need to be reformed?"

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