The chancellor has responded to calls for changes to retailers’ business rates, but stopped short of any action for the time being.

In a letter responding to the Treasury Committee, Philip Hammond stated that the government recognises business rates can represent a high fixed cost of some businesses, adding: “That is why we have taken repeated action to cut the burden of business rates, announcing reforms and reductions worth over £10 billion by 2023.”

Hammond suggested that online retailers may soon be subject to a tax system of their own as he confirmed he would continue to seek “a better way of taxing the digital economy” in order to reduce the tax advantages they have compared to bricks-and-mortar retailers.

“I have been clear that we need to find a better way of taxing the digital economy, and we are making progress on this issue,” stated Hammond. “It is right that we make further progress on this issue before considering the implications for the wider tax system, including business rates, so that all business make a fair contribution to the public finances, and business rates continue to support the stability of local government funding.”

Following the Treasury Committee’s evidence session with the Valuation Office Agency last month, its chair Nicky Morgan wrote to the chancellor expressing concern with the financial burden that business rates are placing on High Street businesses and asking whether he believes they are still fit for purpose.

“It’s clear that many bricks-and-mortar stores are struggling to remain competitive against online retailers, with the chancellor admitting that business rates can represent a high fixed cost for some businesses,” commented Morgan, adding: “We are likely to scrutinise business rates further as part of our Autumn Budget inquiry later this year.”

Earlier this week, the British Retail Consortium (BRC) called on the government to implement a two-year freeze on increases until 2021 to allow for the modernisation of retailers at this challenging time.

Helen Dickinson, chief executive of the BRC, stated that the retail industry is looking for concrete action from the Treasury. “This would recognise the challenges the retail industry is facing and would allow a period of headroom during which industry and government can consult on a fairer, more proportionate system of business taxation.”

Meanwhile, the New West End Company - representing over 600 retailers, hoteliers and property owners in London’s West End - has also urged the government to implement a business rate reform.

It suggested a revenue based tax to replace business rates for online businesses, with the extra money used to reduce the rates burden for other businesses – pointing out that online businesses currently pay just one tenth of the business rates paid by the High Street.

According to New West End Company, if just one per cent tax was placed on online business revenues over £5 billion could be raised each year, allowing the government to cut business rates for by an average 17.5 per cent, at no cost to the Treasury.

Peter Rogers, chairman of New West End Company, said business rates account for nearly half of retailers’ tax bill. “The current structure of business rates, whereby they are linked to the value of occupied property, not economic performance, provides online retailers with an unfair advantage and a 90 per cent rate discount in an already struggling bricks and mortar retail environment,” he stated.

The government has attempted to mitigate the impact of business rates since its revaluation in April last year, including £300 million worth of relief, which was criticised for the lack of speed in its administration. The new system also made it harder to challenge valuations via an appeals process, according to data released in February, which includes a £500 fine businesses face if they are deemed to have wrongly appealed.

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