Abolition of Business Rates

That has to be seen as a further complication of the tax system.

I very much welcome the call for evidence, and my Bill and this speech are little more than a contribution to this debate, but I would like to offer one key reflection that is not addressed by the review. It is not only the retail playing field that needs to be levelled. Retail is perhaps the most obvious sector where consumer behaviour is changing, but there are similar trends in other fields. New competition to high street pubs and restaurants is emerging from the dark kitchens of business parks, facilitated by Deliveroo, Just Eat and Uber. Sales and lettings agents—I draw the House’s attention to my entry in the Register of Members’ Financial Interests—are being challenged by the likes of Purplebricks, Strike and Yopa, and travel agents and insurance brokers are also witnessing similar competitive trends.

An online sales tax for retail would therefore only partially level the business playing field. It would also be a very blunt instrument, as different retail sectors have different profit margins, so it would hit some sectors harder than others. Many high street retailers also offer online and click and collect sales, leading to the potentially fiendishly complex prospect of a retailer having to decide how a product was sold and quantifying the tax on it accordingly, while still having to pay business rates, albeit at a reduced level.

In my view, it would be better to completely scrap business rates and apply a small increase to the sales tax that we already have—VAT. That would immediately level the playing field and would not create any additional bureaucracy or burden on business. We would completely dispense with the convoluted business rate system, including revaluations, check, challenge, appeal, annual bills and debt collection. It would liberate thousands of talented, intelligent, hard-working people in the Valuation Office Agency and survey practices across the country to find new career opportunities that would help drive the UK economy forward.

No longer would we need the myriad reliefs—small business, charitable, empty property, retail and rural—as, due to its input and output elements, VAT would continue to automatically adjust, depending on the business type and turnover. A further and perhaps more controversial levelling would be delivered through a reduction of the VAT threshold, currently £85,000, to the German level of £20,000. The current level creates winners and losers either side of the cliff edge. It disincentivises growth and incentivises tax evasion.

There are no easy solutions. As Ronald Reagan once said:

“There are no easy answers, but there are simple answers.”

An increase in VAT from 20p to 23p would fill the £30 billion per annum gap created by the abolition of business rates. Some might say, “Won’t businesses simply pass on the increase to consumers?” Yes, of course. In a competitive free market, all taxes are paid by consumers, as profit margins are inexorably driven down towards the cost of capital. Exactly the same thing happens with corporation tax, business rates and, indeed, online sales tax.

Others might raise concerns about how it might affect recent moves to allocate business rates receipts to fund local authorities, but the HCLG Committee heard compelling evidence that there was very little correlation between business rates and local service need, so it makes no sense to fund councils by means of a system that needs to be adjusted through convoluted top-ups and tariffs. We should look again at the future funding of our councils alongside this proposal.

Governments of all shades have a chequered history when it comes to simplification of the tax system, picking winners, targeting incentives and allocating reliefs. We should avoid doing that wherever possible. Instead, we should focus on a levelling of the business playing field. The move from business rates to VAT does exactly that. I commend the Bill to the House.

That Kevin Hollinrake, Andrew Griffith, Julian Knight, Richard Fuller, Tim Farron, Mark Garnier, Huw Merriman, Sir Greg Knight, Marco Longhi, Robbie Moore, Duncan Baker and Aaron Bell present the Bill.

Kevin Hollinrake accordingly presented the Bill.