The tax system of business rates is “no longer fit for purpose”, according to Helen Dickinson, the director general of the British Retail Consortium (BRC).

 A controversial proposal for a £400m ‘Tesco Tax’ has brought the issue to the fore, with business leaders saying it will cost jobs without improving the system.

The plan, proposed by a group of 20 councils, would see large supermarkets taxed to pay for improvements in local shopping areas.

Critics say this ignores the fundamental problems with the way small businesses are taxed, and that it could have a negative effect for consumers.

John Rogers, chief financial officer of Sainsbury’s, said:

“High street retailers already contribute disproportionately to funding local services. Any further increase in business rates paid by supermarkets would inevitably contribute to higher food prices for consumers.

“Instead of looking to increase the tax burden we should work to reform the rates system to ensure a fair tax system for retailers and councils alike.”

Business rates, which are levied on business property, increase every year in line with inflation and are worth an estimated £27 billion to the Treasury.

The tax disproportionately affects smaller firms and often contributes to forced closures.

John Allan, chairman of the Federation for Small Businesses said:

“What we currently have is a system that takes no account of ability to pay, or changes to economic conditions. The FSB wants to see a level playing field for all businesses, and that means starting from scratch.”

Image by Clive Darra