The Big Question: How should business rates be reformed?

James Daunt, chief executive, Waterstones

The tax burden on retailers should be realigned to reflect the reality of consumer behaviour through the elimination of business rates on retail premises, compensated by a new tax on online sales. A sensible threshold, as exists with VAT, should exclude small retailers and entrepreneurs in online retail and thereby also ensure the immediate adoption of the online tax.

For a large retailer such as Waterstones, with both an estate of physical shops and a substantial online operation, the overall burden of taxation would change little. What would change is the present incentive to close physical shops, especially in more deprived locations, in favour of further concentration on online growth.

Evidently, dedicated online retailers will pay more tax and small retailers, especially independent shops, will pay less. The advantages to the high streets of smaller towns and the more disadvantaged retail locations will be substantial. Jobs in these communities, and the social fabric supported by shops, will be protected. It will also result in a small increase in prices for online shoppers, and a corresponding decline in physical shops. Again, the most disadvantaged in society – those with least access to the internet – will be the beneficiaries.

A change to business rates in this manner would align the taxation system to support the most socially advantageous business strategy rather than the perverse fact that at present it does the opposite.

Robert Hayton, UK president of property tax, Altus Group

Retailers with large properties where values have plummeted often never enjoy the full benefit of a revaluation – making the rating system less responsive to changes in local economic conditions. If we are serious about ‘levelling up’ the economy to help struggling towns, the gradual phasing in of tax reductions must end. 

Had it not been for the rates holiday, since 2017, the retail sector would have been denied tax reductions of £1.22bn through this policy. Abolishing downward transition would allow retailers to respond to changing markets and this will be more important than ever in 2023 given retail rents have been in decline in large swathes of the country.

The respite to the financial burden of rates can also be alleviated through the ending of the ridiculous policy of annually increasing upwards the tax rate in line with September’s headline rate of inflation. Growth, not inflation, should be the driver for local authorities to grow their revenues especially as other corporate taxes do not rise with inflation. 

Incentivising, rather than penalising through the tax system, those retailers investing in sustainability to lower energy consumption and emissions from their properties would demonstrate that the government is also serious about climate change and a green recovery.

Jonathan Cole, investment director, Ellandi

Fundamentally, the burden of business rates on retail has to be reduced from current levels. The disconnect between rates and rents in the sector is stark: between 2001 and last year, growth in retail rates was more than five times greater than growth for retail rents. Rebalancing can be achieved by reducing the uniform business rate (UBR), revaluing more often, and removing ‘downwards transition’, which is still pegging retail rates to 2008 rental values in many locations. This is really quite striking when you think about it.

Research commissioned by Revo confirmed the areas losing out most are actually those the government’s levelling up agenda is supposed to help. The rates rise in the North and Midlands has been almost 12.5-times greater than the rise in rental values, compared to 4.1-times greater in the South. So it makes political as well as equitable sense to truly rebalance the tax.

I was privileged to contribute to Revo’s submission to the government’s recent business rates review – including calls for the UBR for retail to be ‘reset’ to 30p, annual revaluations, ditching downwards transition, and reform of empty property taxation to better reflect the realities of the retail property market.

Of course, this has a cost. But supplementary tax streams such as an online sales tax, turnover tax or delivery charge could plug the gap. They can also offer a fairer way of distributing the tax burden – allowing the system to evolve with consumer trends and tap into a sustainable revenue stream.