The House of Commons select committee agreed that the system was “broken”, with rates for high street businesses, such as pubs, unfairly calculated.
The Government should examine alternatives to the current system in time for the 2020 Spring Statement, the report concluded.
It said the Valuation Office Agency needed to act quicker to resolve appeals because pubs were struggling to stay trading while they waited for rate reassessments.
Trade organisations, including the Campaign for Real Ale (CAMRA) and the British Beer & Pub Association (BBPA) said reform must be a priority for whichever political party wins the 12 December general election.
Alison McGovern MP, the committee’s lead member for this inquiry, said the system was broken and alternatives must be considered.
She said: “It’s abundantly clear that the current business rates system is broken. The tax represents an increasing burden on businesses, particularly those with a physical high street presence struggling to remain competitive.
“Odd reliefs here and there are nothing more than sticking plasters to a system in urgent need of reform.”
Although the committee was presented with alternatives, it had not been “sufficiently modelled to examine who would be the winners and losers of any change,” McGovern said.
Almost three quarters (72%) of publicans have said the business rates system is unfair to pubs, according to a survey published by CAMRA.
BBPA public affairs director David Wilson said the burden of rates on pubs was “especially acute when they are already being squeezed by other taxes, such as unreasonably high beer duty”.
He added: “The report also rightly highlights how the current system is a serious disincentive to investment, whereby people who put significant funds into improving their businesses are almost immediately punished with higher business rates.”
UKHospitality chief executive Kate Nicholls said the trade body would press the Government to implement new legislation that treated the hospitality sector fairly.
- The Government should acknowledge the revenue from business rates has outpaced inflation and explain whether it is Government policy to allow this
- Further investigation is needed before the committee can recommend any proposal as a superior alternative to the current system and this should be done before the 2020 Spring Statement
- Reliefs are bureaucratic and complicate the system further. They should be reviewed to ensure that they remain necessary
- The Valuations Office Agency (VOA) must resolve outstanding appeals urgently
- The appeal system – Check, Challenge, Appeal (CCA) – is still in ‘beta mode’ and has caused many unacceptable difficulties for taxpayers, for example, ratepayers with multiple properties
She added: “The current system is nowhere near flexible enough and it has directly contributed to the decline of high streets.
“We need a complete rethink of the system and an overhaul to bring it in line with the 21st century.
“We are pleased that policy-makers are listening to the concerns of businesses and acknowledging that there must now be action.”
CAMRA national chairman Nik Antona said the sector was overpaying about £500m every year because pubs pay 2.8% of the business rates bill but only account for 0.5% of total business turnover.
Bricks and mortar
He continued: “The report highlights that business rates do not fall upon all businesses equally and they place a far greater cost on bricks and mortar, than those that operate mainly online.
“The crucial role pubs play as the social heart of many communities cannot be moved online. That is why it is vital that the system is drastically reformed or replaced.”
Licensee Alan Oliver, who runs the Six Bells pub in St Albans, Hertfordshire, told The Morning Advertiser his rates valuation had increased from £30,000 to £62,000 earlier this year.
He said: “The system is taking the bottom line profit out of businesses in St Albans.
“We already have to start planning. If we don't get a reform then a lot of the pubs are going to really struggle to make ends meet.”