Unjustified business rates are a hungover relic from the time before the digital age

Kate Nicholls
Fred Perry and Sir Peter Blake Blank Canvas Clothing Project Launch.
Businesses in the restaurant and bar sector pay 4.5 per cent of the total liability yet account for just 1.1 per cent of turnover (Source: Getty)

Business rates are a tax on property that is statutorily required to bring in the same amount of revenue each year in real terms.

This amounts to a cash increase every year. While more money is being collected, fewer properties are now paying the tax.

The reason for this is fairly obvious: a rapid move by businesses towards online services. The clearest example is in retail, but this is also evident in banking, communications, professional services, and other parts of our lives.

Read more: Retailers braced for £280m rise in business rates as inflation climbs

This shift is no bad thing in itself, but it does raise questions of a tax that is based solely on physical property, and last underwent any significant reform in the early 1990s.

One of the main factors driving the switch to online – and away from high streets – is the escalating costs of business rates.

This year’s revaluation saw bigger increases for high street operators than for digital businesses – so naturally firms have an incentive to look to leave the high street, and perhaps cease trading from bricks and mortar properties altogether.

Thus the cycle continues. More money needs to be raised from fewer properties, which then switch their business models so they are not so reliant on a physical location, meaning greater sums need to be raised from even fewer properties, which are squeezed by even higher business rates. It is simply unsustainable.

It also unfairly targets businesses which by their nature require a high street presence, requiring them to make up the shortfall caused by other sectors in which flexible or remote working is more feasible.

Eating and drinking out is one of Britain’s most dynamic, innovative and resilient sectors. It has created one in seven of all new jobs, and has grown by more than five per cent each year since 2010. Pubs, clubs and restaurants have driven a renaissance across high streets that are now being damaged by increasing financial burdens. It is clear that this situation cannot continue indefinitely, without gouging the heart of Britain’s high streets for good.

In our submission to the Treasury ahead of next month’s Budget, the ALMR has outlined a compelling case for wholesale reform of the outdated rates regime. The total rates bill for eating and drinking out businesses currently stands at £1.1bn. Businesses in our sector pay 4.5 per cent of the total liability yet account for just 1.1 per cent of turnover. This works out as an overpayment of £890m every year.

So, what can be done? A good initial step would be to either freeze the business rates level, or use the CPI rate of inflation over the discredited RPI for uprating.

The second crucial step would be to announce a full root-and-branch review of the system, with sector-specific reliefs until this takes place.

All the main parties had commitments to address its flaws and unfairness in their election manifestos earlier this year. We now need action rather than words.

Finally, we need the importance of our vibrant sector reflected in the machinery of government. Issues critical to the sector straddle a number of different departments, encompassing employment, planning, taxation, tourism, and more. There is a real need for all of these to be considered holistically.

First though, we need to stop the business rate model from destroying our high streets.

Read more: Foreign diplomats dig heels in over £1m of business rates owed to UK

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