It has called for an urgent review on alternatives to be launched by the time of the next Spring Statement, with a warning that rates are high, complex and place an unfair burden on high street shops and businesses as opposed to those that operate online.
The committee also criticised a backlog of 16,000 appeals against business rate decisions and called for the Valuation Office Agency (VOA) – which values properties for the purpose of council tax and for non-domestic rates in England and Wales – to be properly staffed.
The report follows an inquiry that saw the LGA submit written evidence, and LGA Resources Board Chair Cllr Richard Watts give oral evidence to the committee.
During its inquiry, the committee said it had been presented with numerous alternatives to the current system, including a land value tax, online sales levy, profits tax, single consolidated tax and hybrid tax.
“Councils want to see a business rates system which is responsive to local needs and fair to all
It said further work is needed before it could recommend any proposal as a clearly better alternative but insisted it should not be left up to business to develop and evaluate detailed proposals.
The report also made a series of further recommendations, including a call for the Treasury to review all business rates reliefs to ensure that they remain necessary. It said the number of reliefs that are needed for business rates to work indicate “a broken system”.
It also concluded that the fact there are still business rates appeals outstanding from the 2010 listing is “unacceptable” and must be resolved as a “matter of urgency”.
The committee said the VOA’s previous appeals system needed to be replaced as it made it too easy for businesses to make speculative appeals and created an unsustainable workload for itself.
No business should be waiting for more than two years into the next rating list for their checks or challenges from the previous rating list to be resolved, it said.
The LGA was pleased that the report concluded that any reform of the business rates system should have to maintain total income for local authorities and to keep the link between authorities and current and potential new businesses in their areas.
In response to the report, Cllr Watts said: “Councils want to see a business rates system which is responsive to local needs, fair to all and promotes inclusive growth through incentives.
“Local government has a strong interest in a reformed business rates system which commands confidence and where there is local discretion over reliefs.
“We therefore support a more detailed review for an income source which is a secure and reliable source of revenue alongside reforms to the current system. We look forward to being involved in work leading to a consultation on possible alternatives to business rates.”
At the time the report was published, the Treasury said it would respond to the select committee’s report in due course.