Non-Domestic Rating (Designated Area) Regulations 2021

Lord German Excerpts

Wednesday 24th February 2021 Lords Chamber

[Lord German (LD) [V]]

My Lords, I also welcome these regulations and the narrow spectrum that they contain, but I want to address the wider issues that business rates inflict on business in this country, particularly with regard to the needs of revival following the pandemic. While these regulations provide a system for incentivising growth and encourage local government to take steps to promote business growth, they will not serve every cash-strapped council in the short term. The effects of the pandemic and lockdown have shown how challenging our present business rate system is and how fragile a tax it is.

One of the first incentives that the Government provided to business during the pandemic was a business rate holiday, and rightly so. Given the extent of the lockdown, this is acting as a real drag-anchor on our town centres, which are now facing a much smaller retail offering moving forward. Fixed business rate taxes act as a discouragement to newcomer shops and enterprises. Our town centres will need a rethink if they are to survive as hubs for our communities.

Equally, the universality of business rates and their inherent weaknesses will undoubtedly lead to slower town centre recovery in the poorer parts of the country. Boarded-up shops will be more of a feature if large steps are not taken now to revitalise our town centres. The retail and community offer in our centres must be given the right incentives if they are to re-establish these as places to which people want to go. Our business rates system is simply not fit for purpose for this to happen.

The crisis facing our high streets and the burden business rates place on companies compound the problems that we have with this tax. Business rates, by taxing the value of a business’s machinery and premises, are a tax on investment itself. The result is a higher bill for the ambitious entrepreneur who decides to expand factory space or add solar panels to the roof and a lower bill for the speculative landowner who chooses to leave their commercial plot derelict or unused. The replacement of business rates with a new tax based solely on land value and paid by landowners, would remove the existing disincentive to invest. It would also spare millions of small businesses which rent their premises the unhelpful administrative burden of business rates.

Business rates have become an unacceptable drag on our economy. This system is a tax on productive investment at a time of chronically weak productivity growth and a burden on a high street struggling to adapt to the rise of online retail and the impact of the pandemic. Because of the highly unequal way in which land values currently exist, a land tax of this sort would significantly reduce business taxes in the poorest parts of the country, helping bring about the regional rebalancing that is so badly needed. By taxing only land, and not the productive capital above it, it would remove a major disincentive to investment, boosting productivity and accelerating the UK’s recovery.

The business rates retention policy in these regulations, of sharing between central and local government—and solely within local government in this case—and providing local councils with extra cash to promote growth, could work equally well under a land value taxation scheme. Any growth in revenue could still accrue to the local authority alone. Therefore, although I agree that these regulations can serve us well as a policy in a period when growth is possible and likely, I encourage the Government to consider a new system altogether which would stimulate growth and encourage endeavour rather than just taxing it.