Treasury minister told hospitality overpays business rates by £1.8bn

By Claire Churchard contact

- Last updated on GMT

Rates crisis: the problems for the hospitality sector in relation to business rate have been highlighted in Parliament
Rates crisis: the problems for the hospitality sector in relation to business rate have been highlighted in Parliament

Related tags: Business rates

The hospitality sector is “overpaying” on business rates by £1.8bn, MP for York Central Rachael Maskell told a Westminster debate on Friday, stating that the situation has reached “crisis” levels.

Addressing MPs, including Treasury minister Mel Stride, Maskell said: “The hospitality sector employs 2.9m people across the UK and although it pays 10% of all business rates, the sector’s share of turnover is just 3% — as the sector puts it, it has made an overpayment of £1.8bn.”

She highlighted business closures and job losses that are already happening and said she had witnessed major employers leaving the city of York citing excessive business rates, adding that the rates are “an extremely antiquated system that is not fit for purpose in our globalised digital age”. 

“The 2015 valuation took a particular toll on businesses in York," she said. "We have had increases as high as 600% for pubs and retail outlets, including a bicycle shop in the city.”

Maskell also strongly criticised the Valuation Office Agency which deals with rates appeals saying it “is not fit for purpose” as it has lost staff and its IT systems are “creaking” as she called on the Government to act.

Alternative tax systems

To resolve the issue, Maskell suggested two alternative models: a “turnover tax”; or a “profit-based levy”.

She said that the turnover tax would need to be tapered to account for businesses with a high turnover but low profits, while the profit based levy would mean the more profit a business makes the more it would pay proportionately.

Responding to her concerns Stride said he appreciated that business rates are one of those taxes that businesses simply cannot avoid and that “are paid irrespective of profitability, which of course has particular consequences in some cases”.

However, he said the two alternatives suggested by Maskell would not work as businesses that are not profitable still have a turnover, so taxes based on this could “throttle” new entrants, while a tax on profits could encourage “profit shifting” where businesses moved profits around between multiple enterprises to reduce their overall level of tax.

Business rates advantage

Stride said business rates have a distinct advantage when it comes to avoidance, because “buildings cannot be shifted around in the way that it might be possible to shift other metrics”.

He defended the rate levels set saying “they are valued by the VOA using the fair maintainable trade method, which has been agreed with the British Beer & Pub Association”.

He also highlighted the Government’s business rates relief of £9bn, pointing out that the Government had made 100% small business rates relief permanent, taking 600,000 businesses out of rates altogether as well as increasing the threshold for the standard multiplier, removing 250,000 businesses from ​the higher rate of business rates.

Related topics: Legislation

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