Bye Bye Business Rates: Labour pledges to do away with business rates if elected

October 8, 2021

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3 min read

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What's going on here?

The shadow chancellor, Rachel Reeves, has said that if Labour are elected they will scrap business rates” and “carry out the biggest overhaul of business taxation in a generation, so our businesses can lead the pack, not watch opportunities go elsewhere.”

What does this mean?

Business rates are taxes charged on most non-domestic properties, such as shops, offices, pubs, warehouses, factories, holiday rental homes or guest houses. Rachel Reeves has declared this current system, which hits high street businesses but misses online giants, not “fair” or “fit for purpose…High street businesses pay over a third of business rates, despite making up only 15% of the overall economy.”

Labour’s proposed policy would freeze business rates until the next revaluation, which is now scheduled for 2023 after the 2021 revaluation was pushed back by the government. This would benefit high street retail and the hospitality industry. The policy would also increase the threshold for small business rates relief, so that these businesses could benefit from a discount before Labour implemented their more radical reform.  

This more radical reform is yet undefined, but the shadow chancellor said the system would reward investment, with a specific focus on incentivising decarbonisation, green technology and revival of high streets and neighbourhoods in which properties are currently empty or unused. It would involve more frequent revaluation and guarantee immediate reductions in bills when property values fall.

What's the big picture effect?

These proposals will be very welcome to high street retail and hospitality business owners. Over the last year and a half, these businesses have been some of the hardest hit by the Coronavirus pandemic and lockdown restrictions. On top of this, there has been a jobs crisis in the hospitality industry, partly caused by the pandemic, partly by Brexit, which has forced many businesses to operate at reduced capacity or to cut down their business hours (read our article on that here). On the other hand, many online businesses have boomed, as people have found themselves at home with little access to in-person retail or dining. Customers who previously shopped in-store have moved online, and many have stayed online despite restrictions easing. 

To reflect this imbalance, Labour is proposing to increase the tax rates for tech giants, which will help to compensate for the loss of revenue which will inevitably follow their plans to scrap business rates. They propose to increase the digital services tax from a 2% annual tax to 12%. Reeves said that if this were implemented in 2022/23 it would raise £2.1 billion. However, this plan is greatly complicated by the fact that the UK government is currently involved in negotiations for a global deal on corporate tax. The deal is expected to be implemented in 2023, and one of the conditions is that countries remove any domestic digital service tax. Labour have not opposed the global deal, despite it preventing the party from carrying out its proposed digital services tax rise. This has left many wondering how Labour really intend to fund their tax cuts, or whether they have a secure plan at all. 

These proposals reflect the difference in attitudes towards taxation in the Labour party as compared to the Conservative party. Reeves has declared that, unlike the Tories, Labour would “not be balancing the budget on the back of working people”. She claims that the government should be raising money from private equity companies and big corporations, rather than via council tax rises, a 1.25% national insurance hike and a universal credit cut. This will be a very welcome attitude for many who resent the Tory government’s treatment of working people and want to see taxes aimed at the rich, as the UK looks to recover its economy after 18 months of uncertainty and restrictions.

Report written by Elizabeth Ambrose

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