Reform of business rates could help to 'level-up' Northern economy - Tom Lees

For over 400 years, a form of business rates has existed in the UK as a way of raising additional revenues from local businesses, with the last major reforms coming towards the end of Margaret Thatcher’s third term.
Tom Lees, Director of the Northern Policy FoundationTom Lees, Director of the Northern Policy Foundation
Tom Lees, Director of the Northern Policy Foundation

Since then, we have experienced business and societal changes that many would have deemed unimaginable: the end of the Soviet Union, the World Wide Web, the financial crash, and the UK leaving the EU.

With so much change one thing sadly hasn’t altered – the divide between North and South. Only London and the South East have productivity levels higher than the UK average with Yorkshire and the Humber near the bottom of the table.

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Men in parts of the North die on average nine years earlier than those in Kensington and Chelsea with 70 per cent of constituencies in most need of “levelling-up” located in the North or Midlands.

You only need to take a walk around some of our town and city centres to see the physical representation of what needs to change, with boarded-up shops or once thriving high streets now only home to betting and charity shops.

The situation is only likely to get worse as once-viable businesses are put under significant strain from the pandemic and the accelerated and forced switch from bricks and mortar stores to online.

While the rise and fall of different businesses is a natural part of life and essential for innovation, not all retailers are competing on a level playing field.

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Business rates are a property tax dependent on the hypothetical rental value of a commercial property which in theory should move with the market.

This is not related to the profit or turnover of business so can create significant winners who are barely impacted by the tax due to high profits versus low rateable values compared to those in the opposite position.

In fact, business rates impact our Northern businesses far harder than many in the south.

New research commissioned by Tesco showed that eight out of 10 of areas facing the highest business rates burden are in the North or Midlands and are the focus for the Government’s levelling-up ambitions.

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While we want to see a shift towards high-productivity, high-knowledge and highly-paid jobs, retail remains important due to its significant scale of employment and hence its economic impact – 2.3m people are employed in retail jobs around the UK, with the sector disproportionately providing more jobs in Yorkshire and the Humber as well as a route for many people to secure their first jobs and progress.

With Covid giving us opportunity and impetus for looking again at how we do things, we must not overlook the more “mundane” things like business rates while having attention gripped by new transport infrastructure or advanced research agencies.

Cutting, reforming or replacing business rates in the UK could create a fairer system than could help our high streets to flourish while fairly raising much needed tax revenues from businesses.

With the delay of the Budget until next year, the Treasury has the chance and time to do something radically positive and take on one of the most unpopular taxes in the UK. Hopefully they will seize the moment.

By Tom Lees Director of the Northern Policy Foundation