Labour promises bonfire of business rates

LABOUR PARTY CONFERENCE 2021: Labour has pledged to scrap business rates to “ease the burden on bricks-and-mortar businesses”, while proposing an immediate digital services tax hike to 12%. In her first party conference speech since becoming shadow chancellor, Rachel Reeves said a Labour government would “oversee the biggest overhaul of business taxation in a generation”. “The next Labour government will scrap business rates altogether,” Reeves told Labour delegates in Brighton. “The truth is our whole system of business taxation is not fair, and it is not fit for purpose.” Business lobby groups have reacted warmly to the plan, but some have warned that throwing the baby out with the bathwater would be a mistake. But Colliers International accused the shadow chancellor of “playing to the gallery” and “grandstanding”. John Webber, head of business rates, said: “Whilst we are great advocates of business rates reform, the shadow chancellor’s suggestion to abolish the system altogether without any concrete means of raising £26bn of tax, smacks of playing to the gallery at the Labour party conference.” Reeves, a former Bank of England economist pointed out that while high-street businesses account for 15% of the economy, they pay more than a third of business rates. “How can it be fair, when bricks-and-mortar high street businesses are taxed more heavily than online giants?” she said. “So we will level the playing field and ease the burden on bricks-and-mortar businesses.” Reeves pledged that the system that would replace business rates would “reward businesses that move into empty premises”, as well as incentivise investment and promote entrepreneurship. “But most of all it will make our system of business taxation fair for the 21st century.” Reeves said that many retailers could not wait for a Labour government to fix the broken system. “Many are struggling right now, with a cliff edge of rates relief coming up in March,” she said. “Four out of five retail businesses are warning that they may have to close outlets if the government does not act.” She called on the government to freeze business rates next year and to increase the threshold for small business rates relief to ensure that all small and medium-sized businesses received a discount. Reeves said that to pay for that discount the online services tax should be immediately hiked to 12% in the next year, to make sure online companies “who have thrived during this pandemic” are paying their fair share of taxes too. “When Amazon’s revenues went up by nearly £2bn last year, how much did their taxes go up by? Less than 1%,” she said. “If you can afford to fly to the moon then you can afford to pay your taxes here on planet Earth.” Reeves also said that a Labour government would not only have an industrial strategy, but would create industrial strategies for “overlooked industries”, including retail and hospitality. A number of elements that appeared in a press release – that the rates replacement would “feature more frequent revaluations, and instant reductions in bills where property values fall” – were not included in the final speech. A pledge was also made to “carry out the biggest wave of insourcing of public services in a generation”, ending an era of “money wasted on outsourcing companies”. The party also pledged a bonfire of the hundreds of tax breaks in the current system. “Some are important but too many simply provide loopholes for those who can afford the best advice,” Reeves said. “We will look at every single tax break. If it doesn’t deliver for the taxpayer or for the economy then we will scrap it.” And there was a commitment to “seize the opportunities of the green transition” by investing an additional £28bn a year until 2030. Reeves said: “I will be a responsible chancellor, I will be Britain’s first green chancellor.” The speech has been warmly welcomed by the business community. The CBI’s chief economist, Rain Newton-Smith, said that Labour’s decision to describe itself as pro-business was a “significant shift and hugely welcome”. “The party views business as part of the solution and not a problem to be solved,” she noted. “This can be seen in its recognition of the damage caused by the outdated and outmoded business rates system, which acts a drag on investment and a barrier to firms seeking to go further and faster on decarbonisation. And the proposed green investments send the right signal at the right time.” Newton-Smith concluded: “This is something business can get behind, as are commitments to sound public finances, incentivising investment and promoting entrepreneurship.” Meanwhile British Chamber of Commerce director general Shevaun Haviland, said: “Businesses welcome any attempt to blunt the rise in business rates and the prospect of a more fundamental reform of a broken system. Chamber businesses have been calling for reform for years. “The current arrangements are a barrier to investment and cause an unnecessarily large burden to be placed upon businesses regardless of their ability to pay. Wholesale reform of this longstanding drag on business has become only more pressing due to Covid-19.” She added that Reeves was right to highlight that reforming rates must be placed within a wider context of how businesses are taxed, including online-only businesses. “However, any changes must be done in close consultation with business and international partners to ensure the UK can continue to compete effectively on the global stage.” Haviland added that care should be taken when reviewing tax reliefs “as they can play an important role in incentivising investment that may not happen otherwise”. London First chief executive John Dickie said that the lobby group supported plans to tear down business rates. “The business rates system is broken, so bold measures that reduce the tax burden on firms are welcome, and would support the bounce back from the pandemic.” But he was less convinced by plans to unilaterally increase an online tax. “It is critical that a globally competitive tax system remains in place. While a digital tax hike sounds like an easy win, a global tax regime for online firms is just around the corner. A UK-specific tax hike risks driving innovative firms offshore.” Colliers’ Webber pointed out that, as the next revaluation is in 2023, Labour would not be in power to freeze any business rates rises before then. He added that the emphasis on expanding small business relief would not “save the high street” as there were “already a myriad of small business rates reliefs”. “We also need to rebalance the tax take on the bigger retail players- the ones that create the most jobs and decide where to open and shut stores- if we seriously want to make an impact on the high street and save jobs,” he said. Replacing the £26bn tax take by a new, as yet undefined system is “too woolly a concept”, he said. He also adds that targetting online players would be in contravention of the emerging global digital tax, a condition of which is that countries remove any domestic digital service tax. “We agree we need to look at other means of shoring up the tax take. But declaring an abolition of the system altogether – a system that produces £26bn of revenue for the Treasury – is naïve,” Webber said. “We should learn from other countries that have fairer and equitable business rates systems and have a sensible discussion about reform to create a rates system that properly reflects the needs and obligations of UK businesses in the twenty first century.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo: Anthony Harvey/Shutterstock