Labour would abolish business rates

Shadow Chancellor, Rachel Reeves announced at the Labour Conference yesterday that she would abolish business rates and replace it with a “fairer system that is fit for the 21^st Century”.

But then in the next breath alluded to the end of downward transitional relief, “allowing business to benefit from revaluation discounts straight away”. It’s a bit of a mixed message, which suggests an immediate change to transition followed by the replacement of the entire system in short order.

Labour’s position on business rates is nothing new and the same sentiments were raised by Reeves at last year’s Conference. The mechanics and basis of a new replacement tax are unclear but there have been suggestions that it would be a combination of land and rental values. Changing to a land value based tax has some fundamental problems, the main one being the identification of comparable evidence to support values, which is hindered by the antiquated Land Registry system and a general lack of transparency in the property market.

Other countries levy a land-based value tax on owners/landlords as opposed to tenants/occupiers but this fundamental shift would without doubt lead to increased rental values as landlords recover the cost from tenants.

The next general election is no later than January 2025 which gives the current government time to implement changes that have been identified through so many recent consultation exercises. They missed the opportunity in the recent (disastrous) Mini-Budget, but the Truss camp have suggested that there are more announcements to make, including the changes to business rates that were such an obvious omission from last week’s budget.

Business rates collects £26bn a year and remains a fundamentally cost-effective tax to administer with a high overall percentage collection rate. With effective reform it can be fit for purpose. The Labour announcement grabs attention, but without clarity about the mechanics of calculating and collecting it, it’s just empty rhetoric.