Time for Change: Abolish business rates and introduce a Landlord Levy

As we emerge from the Covid-19 pandemic, our high streets are in a desperate state, and with rising public spending and an ageing society, the government urgently needs more tax revenue to ‘build back better’. Our new report finds that the Government should provide a boost to retailers on the high street by shifting the burden of business rates from retailers to landlords.

The research – drawing on 20 interviews with tax directors at large businesses with UK operations – finds that a number of issues exist with the current business rates regime, including deterring investment in buildings. Only once these have been resolved can the Government consider increasing business taxes in a way that would minimise the backlash from companies.

The report therefore suggests that an overhaul of the system, shifting to a Landlord Levy, will deliver a much-needed boost and provide several benefits to brick-and-mortar retailers. It would shift the administrative burden of paying business rates from tenants to landlords and would remove existing disincentives to invest in buildings.

Demos is recommending that the Government abolishes the politically toxic business rates system entirely and replaces it with a new Landlord Levy so that they can unlock the ability to raise more much-needed tax while delivering the overhaul that the system needs.

The report proposes that:

  • Commercial landlords become responsible for paying tax on commercial property, in place of tenants, who pay under the current system.
  • The tax base for commercial property is based on land values only, rather than the land value and the building value combined.
  • The level of tax payable by a commercial landlord is set and revalued regularly, with reference to rental values.

Ben Glover, Deputy Research Director at Demos and co-author of Time for Change, said:

“Business rates aren’t the main reason high streets are struggling, but they don’t help either. They punish shop owners for investing in their premises and their inflexibility means businesses in many places are paying more than they should have to. The political toxicity of business rates also means that no sane minister would ever try to raise them.

But shifting the burden to landlords – who are viewed less sympathetically than shop owners – would relieve hardworking retailers of tedious bureaucracy and open the door to raising additional tax revenue from businesses. This is vital if ‘building back better’ is to be paid for. It’s time to scrap business rates and replace them with a landlord levy, paid by landlords and based on land values.”

Read the report here.