You might expect delegates at this year’s Labour Party conference in Manchester to be largely pro-business taxation. What’s more interesting is that there’s also good deal of sympathy for the plight of small companies being squeezed on rates. In fact, a Guardian fringe session dedicated to the thorny problem of business rates ended in an outbreak of consensus on one matter: the business rates system in the UK isn’t working.
“It’s subjective and arbitrary and doesn’t take into account economic climate,” said Mike Cherry, national policy chair of the Federation of Small Businesses. “The Treasury takes £25bn and irrespective of who’s contributing that stays the same. So less pay more and more pay less.”
He said the system of rating businesses was also difficult for small organisations to understand. “Businesses often don’t know what they are being rated on. If you’re improving security for your business and putting in CCTV cameras, that can increase your rates. What all this means for those businesses that are paying rates is that it is costing us growth, and stopping us creating more jobs and growing our businesses”.
This money, said Cherry, could be put back into creating more jobs. “We are looking at a fundamental reform of something that is not fit for purpose and does not deliver around the economic realities.”
The British Retail Consortium (BRC) has been campaigning on business rates for the last 16 months and has looked at a range of options and alternatives to the current rating system. Bryan Johnston, external affairs adviser at the BRC, said any new business tax should be flexible to local economic priorities and support other government initiative such as efforts to tackle climate change. He described the status quo as “somewhere between counter-intuitive and bonkers”.
Also speaking at the event, Andy Pickford, director of property at Tata Steel, used examples from the company’s estate to describe the problem: in Scunthorpe, the Tata site pays between £14m and £18m a year in business rates, while a much larger plant at Ijmuiden in the Netherlands, which is bigger and more modern, pays just €2.5m annually. When the question of whether to invest in Scunthorpe or Ijmuiden comes up, Tata asks what the eventual cost will be. “When anything is being invested now I am always being asked what it’s going to add to the rates. And that can’t be right.”
Pickford said his company pays £40m in business rates across the UK each year. “The vast majority of businesses don’t see this as a tax they see it as a fixed cost. It’s not to do with income or profitability. That’s a fundamental point. It doesn’t move up and down and it came in in 2010 when we were in a slump.”
General Motors recognises these difficult questions. “We treat business rates as labour rates and energy costs, so they are far more visible to the business. In the UK we pay 60% of [our] rates for 8% of the footprint. Our plants have only just survived,” explained government relations manager Helen Foord. “To encourage manufacturing in the UK, to encourage us to invest more, we need a system that’s fit for a modern economy and simple to administer, that’s half the issue.”
Foord said it had been a surprise to government that businesses don’t see the annual payment as a tax but a fixed cost. “Investment decisions in the UK have been lost because of business rates and this was an education to the Treasury when we met with them.”
Kelvin Hopkins, MP for Luton North – and, in his own words, “a long way from the front bench” – said he was a passionate supporter of manufacturing in the UK. “I am persuaded about the business rates case but we have to tax somewhere,” he responded. “This is a competitive disadvantage for us and there is a strong case for reform.”
As to why companies operating elsewhere in Europe pay lower business rates, Hopkins suggested it was because other countries raise taxes in different ways. He suggested a business income tax was the way forward.
According to Johnston, reform of business rates would only be successful if industries were involved in the design of the new system, but he welcomed agreement among participants in the debate – especially on the need to avoid regional differences in rates. As Pickford pointed out, “it’s very difficult to move a steel works.”
Johnston concluded: “We’d like a public declaration. There’s a great deal of sympathy and understanding but we’d like a public declaration committing to the process of reform.”
This conference fringe debate was designed and produced by the Guardian to a brief agreed by partners BRC, Tata and General Motors. All content is editorially independent.
Read more from the Guardian Big Ideas at the 2014 party conferences.
