Incoming Prime Minister Andy Burnham is being urged by a coalition of hospitality and retail industry leaders to broaden his proposed reforms to the UK's business rates system. While Mr. Burnham has already pledged to reduce business rates for high street firms, trade bodies argue that his plans do not go far enough to address what they describe as a 'broken and unsustainable' system.
The newly formed Real Rates Reform Alliance, representing 2,800 companies including UK Hospitality, the Institute of Directors, and the British Independent Retailers Association, is advocating for a more radical overhaul. The alliance proposes replacing the current business rates system with a 'hybrid' model that would introduce a 2% tax on all online sales. Ros Morgan, chair of the alliance, stated that the current system is 'no longer fit for purpose' and called on Mr. Burnham to go further in levelling the playing field between online and physical businesses.
High street businesses have long campaigned for significant reform, arguing that the existing business rates system unfairly disadvantages them compared to online retail giants. The alliance claims that their proposal for a 2% online sales tax would generate slightly more than the £34 billion currently contributed to the Treasury through business rates, while simultaneously allowing for a substantial 37% tax cut for 'bricks and mortar' businesses. They highlight that retail and hospitality sectors, despite accounting for 9% of the UK economy, contribute approximately 34% of all business rates receipts.
Mr. Burnham's existing reform proposal centres on increasing the threshold for 100% small business rates relief from £12,000 to £18,000. To finance this, the Prime Minister-designate intends to increase taxes on out-of-town warehouses. However, some retailers have expressed concerns that this particular measure could inadvertently negatively impact high street businesses that rely on these warehouse facilities for their operations.
The call for broader reform comes amidst growing pressure on businesses. A recent poll of 1,000 firms by Savanta revealed that nearly half (47%) have seen their business rates bill increase since April this year. The survey also found that almost one in three (31%) businesses have responded by raising prices for consumers, while 17% have reduced staff numbers. Allen Simpson, Chief Executive of UK Hospitality, warned that business rates are 'actively suppressing investment and growth,' leading to increased costs for consumers and a negative impact on job prospects for young people.