How Labour will replace business rates remains an open question

The party likely to form the next government has given very little detail on its policies in its election campaign so far. When the Labour party is challenged on what has been left unsaid, it often ends up having to list what it won’t do – such as not raising income tax or VAT.

The same holds true for Labour’s manifesto promise to “replace the business rates system, so we can raise the same revenue in a fairer way”. Much remains unsaid here, too. Surely soon Labour will have to start telling us what this does mean as well as what it doesn’t.

Hopefully, it won’t mean reverting to Corbynista-world with something like a land value tax. Or re-hashing mixed Conservative ideas when the party held a so-called ‘fundamental review of business rates’ and considered for example a capital values tax. Without clarity on the taxation of commercial property, investors are denied clarity over whether investing in or occupying real estate is economically sound.

The Shopkeepers’ Campaign has been making representations to policy makers in Rachel Reeves’ Treasury front bench team for many months. While we have urged politicians to introduce changes that create a tax which works for private capital investment as well as the public purse, we are not calling for change for change’s sake. Instead, we propose keeping the elements that work, for example basing the tax on rental value paid by occupiers actually using the public services it finances. That part of the non-domestic rating system has been with us for centuries and it has worked well.

What has not worked is raising business rates to eye-watering levels – from 34p in 1990 to 54p today – so that the occupation of commercial property all too often becomes unviable in the very places that need investment most. Business rates are supposed to be a charge for funding the services that local government provides – such as refuse, street lighting and the management of traffic and the public realm. Surely these services can’t come at the cost of crucifying the valuable economic and social contributions to our towns and high streets that retail, hospitality and local businesses make.

A reset is long overdue. Labour says its new system “will level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship”. I applaud the energy of this commitment but question the lack of accompanying detail to understand exactly how it will be delivered and what it really means in practice.

Hard choices will have to be made. Is Sir Keir willing to incur the wrath of the White House and raise the Digital Services Tax from 2% to 10% for the “online giants” – almost all of which are US based? Is he going to “level the playing field” by making sure online retailers pay their fair share? Is he willing to better “incentivise investment, tackle empty properties and support entrepreneurship” by providing an empty property rates relief period that at least attempts to reflect how long places stand vacant today? A longer empty rates period would allow private capital to be redirected into upgrading properties to meet 21^st century consumer expectations and net zero requirements, while facilitating entrepreneurialism by enabling the temporary occupation of premises to trial new ideas.

At a time of 20% to 40% over-supply of UK retail space, an election of a new government with this mandate provides an opportunity to overhaul the business rates system, incentivising new investment in the places that badly need it. Labour is to be congratulated on its big, bold aspirations. But, as the Conservatives have found to their cost, it takes more than aspirations to deliver healthy high streets and thriving town centres. Whatever the outcome of the election, The Shopkeepers’ Campaign will work closely with the new government to advise on a more economically and socially viable way forward.