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Parliamentary committee offers ‘radical' reassessment of business rates to support high streets

21 February 2019 by
Parliamentary committee offers ‘radical' reassessment of business rates to support high streets

A Parliamentary committee has recommended a reduction in business rates and increased taxation on online businesses like Amazon in a report described as "the most radical assessment of the state of the rates regime".

The Housing, Communities and Local Government Committee's report ‘High streets and town centres in 2030' calls for tough reforms to the business rates system, stating that MPs received "a very significant amount of evidence… about the burden of business rates".

The report adds: "We heard that they were ‘a very significant cost', very burdensome, and for pubs, ‘punishing' and ‘crippling'."

Recommendations for rates include a reduction for retailers on high streets and in town centres, a 12-month "holiday" from rates increases, and an increase in funding to local areas.

Other recommendations in the report include empowering local authorities to breathe life into their local areas, support from central government via increased funding, and reform to planning laws.

UKHospitality chief executive, Kate Nicholls, said: "Hospitality businesses lie at the heart of communities across the UK and play pivotal economic and social roles on UK high streets. The report gives due recognition to how crucial the sector is to the high street of the future, as they move away from the shopping-focus of the past. Policies to drive growth and regenerate high streets must have hospitality at their core and this needs to be recognised by the government and local authorities.

"In the absence of the government's promised full of review of business rates, this represents the most radical assessment of the state of the rates regime. This is a great starting point for opening up the conversation and beginning to address an issue that has crippled many high street businesses, not least in hospitality.

"Property tax is the chief cause of the decline of the high street and a reduction in the tax burden would be very welcome. Supplementing rates with an online sales tax, something UKHospitality has pushed for, would provide a significant boost and the government needs to consider this in the design of the Digital Services Tax. That tax will need to cover areas such as financial and professional services that have moved away from the high street in recent years. A new sales tax or increase in VAT for retail and hospitality would need to be pitched significantly lower than the current business rates charge to be helpful.

"Many businesses are also penalised by a rates hike having made a significant financial investment into their property. A tax holiday would be a good way to remove this disincentive to invest, although the 12-month limit is not long enough."

Brigid Simmonds, chief executive of the British Beer & Pub Association (BBPA), added: "As highlighted in the BBPA's evidence to the committee, the current business rates system penalises businesses like pubs for investing in their property, as improvements lead to rates rises. The committee's recommendation of exploring the introduction of a 12-month ‘holiday' on these rates increases is most welcome. This would be a positive step forward in regenerating high streets and town centres across the UK if implemented.

"The report also recommends replacing business rates for bricks and mortar businesses with a sales tax or an increase in VAT. As always, the devil is in the detail as to whether this would be effective. In any case, a replacement of business rates would need to address the fact that pubs and high street businesses are unfairly taxed, whilst online retailers are not contributing enough. As the report notes, pubs alone pay 2.8% of the total business rates bill, despite accounting for just 0.5% of total rateable turnover. We welcome the call for the government to come forward with views on how business rates could be reformed by October this year. Without doubt a full review is required.

"The Chancellor Phillip Hammond's decision to cut business rates for high street and other small businesses by one third for the next two years in the autumn budget was most welcome, as was the announcement of the £675m future high streets fund. These actions, combined with a number of the recommendations outlined in the Housing, Communities and Local Government Committee's report, are a welcome step towards securing the future of the high street and the pubs that serve them."

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