Memorandum by Tesco Plc Group (LGB 18)
EXECUTIVE SUMMARY
Tesco is the UK's largest retailer and is a
major contributor to UK regeneration and to the wider economy.
We therefore believe that we have an important contribution to
make to this Inquiry.
Any taxation system should be fair, simple to
understand and avoid bureaucracy. The current rating legislation
does not achieve any of these key factors and this draft Bill
only appears to increase the complexity of the legislation.
An urgent review is required to simplify the
system and increase transparency, building on work already carried
out by a number of review bodies.
We believe that a fair and effective system
of business rates is vitally important in ensuring the right climate
for an enterprise culture. A system that is not properly balanced,
or which places disproportionate burdens on particular sectors
of the economy, will inevitably have an adverse impact on infrastructure,
investment, growth and employment.
We were pleased to see the draft Bill proposing
a widening of the tax base by ensuring rateability of meters and
would like further investigation into the rateability of other
properties and rights.
We are concerned about increasing signs that
business rates are being used as an easy way to give relief to
certain businesses with the cost of these reliefs being borne
by larger businesses. We are concerned about the lack of information
on the cost of these reliefs and whether real benefits are being
achieved.
We would like to see a review of the benefits
and costs of all existing reliefs such as those for vacant properties.
Our views on the key points in the draft Bill
are:
— We believe that business rates are
already an unacceptable cost to businesses like Tesco. Tesco pays
over £180 million per annum in business rates. This has to
be seen alongside other tax burdens, which together make retail
a very highly taxed sector, with an effective rate of 51 per cent.
We pay higher payroll taxes than many other sectors because we
are the UK's largest private sector employer and employ many part-time
workers. We also pay large environmental taxes, fuel duties and
stamp duty on land acquisitions.
— We therefore urge the Government
to reverse the ever-increasing burden of business rates on property-intensive
businesses.
— We are in favour of transitional
relief becoming a permanent feature of the rating system. Such
relief must be effective in achieving its objective of ensuring
that businesses are not damaged by dramatic changes to their rate
bills.
— Although the current rating system
has improved the ability of businesses to plan and budget more
accurately some of the proposals would start to erode this certainty.
— We strongly object to the proposal
to allow changes to the multiplier above RPI during the life of
a rating list. This would damage business by introducing a high
degree of uncertainty into business planning.
— Tesco strongly supports partnership
arrangements between local authorities and businesses, and has
pioneered a number of groundbreaking schemes through our regeneration
partnerships. These schemes thrive on flexibility, commitment
and a high degree of enthusiasm and co-operation between the partners
involved. These benefits would be lost through a bureaucratic,
statutory scheme, and we therefore do not support the BID proposals.
— We believe that the Government should
examine more fundamentally which mechanisms are effective in supporting
small businesses, rather than making piecemeal changes to the
business rating system. Where support (eg for small and rural
businesses) is intended to meet wider social and economic objectives,
it should be funded from general taxation, rather than by imposing
disproportionate increases in business rates on larger businesses.
— Although the draft Bill addresses
a number of important issues we are disappointed that some issues
have not been addressed. In addition a number of the proposals
are complex and difficult to understand. There is a lack of detail
in the draft Bill making it impossible to calculate any real costs
and benefits of the proposals.
Part 4
BUSINESS IMPROVEMENT
DISTRICTS
The draft Bill provides the Secretary of State
with powers to prescribe all the details of how BIDs will operate.
It is not, therefore, possible to comment on
the way that BIDs will be implemented.
Our general views on BIDs are as follows:
— We support the Government's wish
to promote partnership between authorities and local businesses.
We fully agree that there are already many good examples of councils
and businesses working together. Tesco itself has pioneered a
number of groundbreaking schemes through our regeneration partnerships.
An example of this is our own partnership arrangement at Seacroft
Green, Leeds.
— Our regeneration partnership schemes
thrive on flexibility, commitment and a high degree of enthusiasm
and co-operation between the partners involved. These benefits
would be lost through a bureaucratic, statutory scheme, and we
therefore do not support the BID proposals.
— In addition, the proposed payment
method, through the business rates, would result in the occupiers
of large properties paying a greater amount into any BID scheme
with possibly no significant benefit.
— We feel strongly that the business
rates are the wrong method of raising funds for BIDs as there
is no relation between the intensity of an occupier's use of property
and the benefits they will receive from BIDs.
— The reason that the existing voluntary
partnerships work so well is that each party knows exactly the
benefits they will be receiving and the costs they will incur
and can make a decision whether to proceed based on this information.
BIDs will largely remove this ability to link benefits and cost.
— We urge the Government to reconsider
its proposals. If, however, the Government concludes that it should
proceed with them, it should review the link between business
rates and BIDs and ensure that payment is shared fairly between
the beneficiaries of any scheme. (eg property owners rather than
occupiers are likely to see their property values increase at
no cost to themselves.)
Part 5
NON-DOMESTIC
RATES
Small Business Relief
There are already several different rate reliefs
currently in operation. For example, empty properties, charities,
and village shops.
These various reliefs are complex to calculate
and understand with no clear link between the costs incurred and
the resulting benefits.
We fundamentally agree with support for small
businesses but do not believe that yet another complex rate relief
is genuinely effective or cost-effective.
We believe a better system for providing relief
would be through other forms of tax such as the VAT system. Raising
the threshold for VAT would have an immediate impact on the outgoings
of a small business without distorting the property market.
Where support (eg for small and rural businesses)
is intended to meet wider social and economic objectives, it should
be funded from general taxation, rather than by imposing disproportionate
increases in business rates on larger businesses.
This draft Bill is an enabling document providing
the Secretary of State with powers to prescribe all details required
to implement small business rate relief, ie: rateable value limits,
conditions a business needs to satisfy, etc.
It is, therefore, impossible to comment either
on the benefit that businesses may receive or on the cost that
will be borne by larger businesses.
On information in previous Government documents
we estimate that these proposals could add £7,000,000 per
annum to the Tesco rate bill.
We believe that the Government should examine
more fundamentally what mechanisms are in place to support small
businesses. This should include, but should not be limited to,
a proper examination of all rate relief schemes, setting out their
costs and benefits. We believe that a fundamental appraisal of
this sort would serve the interests of small businesses and taxpayers
much better than a further layer of piecemeal changes to the business
rating system.
Calculation of Non-Domestic Rating Multiplier
Under existing legislation the multiplier (UBR)
is set at the beginning of each rating list and then increases
by the maximum of RPI during the length of the list (five years).
This is a major factor in ensuring certainty
in a business's budget planning for the future.
We are, therefore, strongly opposed to the draft
Bill's proposals to remove this link in the future.
Paragraphs 70(I) to 70(10) in the draft Bill,
covering three pages, set out how in future the UBR will be calculated
and "adjusted" at the beginning of every year.
The complexity of the Bill's proposals are clear
and illustrate that it will be impossible, if this draft becomes
law, for an occupier to budget and plan for the future.
We do understand that in the past there have
been losses on appeal greater than the Government had predicted,
leading to a potential shortfall in rate take historically. However,
with regular five yearly re-valuations and ever improving information
held by the Valuation Office Agency we can see absolutely no reason
for introducing this proposal.
Transitional Relief
We support the proposal to make transitional
relief a permanent feature of business rate re-valuation.
This is vital for all businesses to ensure their
ability to plan ahead and to avoid dramatic changes to their rate
bills.
Any transitional scheme must ensure that it
actually achieves these stated aims and the Government should
not be distracted from achieving these aims by the requirement
to "unwind" any transitional scheme by the next re-valuation.
The draft Bill does not contain any detailed
proposals for transitional relief scheme so it is not possible
to comment on the benefits or otherwise.
Further detailed consultation with business
is required on any transitional relief schemes.
Rating of Meters
We support any proposals to ensure that all
occupiers of property are taxed equally and fairly under the business
rate legislation and we welcome this proposal.
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