A PLAN to scrap business rates has been one of the major policy announcements of the Labour Party Conference – and it is a change the Welsh Government could, in theory, already implement. 

Some Labour supporters could even argue it is a policy already in, at least temporary, operation in Wales. The Welsh Government committed in March to extending its business rates holiday for all firms with rateable values up to £500,000, and charities, for a further 12 months. 

That was an extension of a policy announced at the start of the pandemic, in line with a decision taken by the UK Government, to offer a business rates holiday to the retail, leisure and hospitality sectors as firms facing immediate closure worried how they would meet overheads. 

Where Wales and England have differed has been Cardiff Bay’s commitment to extend the holiday for a full year, with businesses in England now having to rely on discounted rates, and the £500,000 ceiling introduced by Labour ministers in Cardiff Bay in April 2020. 

They had at first announced they would copy the UK Government policy but following criticism that large supermarkets, one of the few businesses able to trade during the first lockdown, were being given a generous tax break the Welsh Government introduced the £500,000 limit on businesses entitled to support. 

That meant 167 retail, leisure and hospitality premises in Wales, in April last year, paying full business rates, according to real estate adviser Altus Group. 

Those were reported to be 115 supermarkets over 25,000 sq ft, including 48 Tesco stores, 29 Morrisons, 24 Asda, 10 Sainsbury’s, five M&S and four Waitrose branches impacted. 

According to Altus those would have to pay normal business rates totalling £78.02m for 2020/21. 

The reasoning given for Rachel Reeves’ proposal to scrap business rates is that Labour has recognised, what many of those paying the rates have long argued, is the system is no longer fit for purpose with struggling high street retailers having to pay a tax which has far less impact on their online competitors. 

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The burden of business rates was brought into sharp focus during the pandemic with much high street retail closed while there was a boom in online shopping. But the pandemic really illustrated a longer term shift in the economy. 

“The truth is our whole system of business taxation is not fair and it is not fit for purpose,” Labour’s shadow chancellor told the conference  

“How can it be when bricks-and-mortar, high street businesses are taxed more heavily than online giants? High street businesses pay over a third of business rates, despite making up only 15 per cent of the overall economy. But when Amazon’s revenues went up by almost £2bn last year. How much did their tax go up? Less than one per cent.” 

Welsh Labour’s manifesto, for May’s Senedd elections, made no specific mention of business rates but did commit the party to reforming council tax and “clear and stable tax devolution” that wouldn’t be “held back by the Tory UK Government.” 

Reforming business rates would have major implications for local authorities which collect the charges levied against businesses in the area, on behalf of the Welsh Government. The money is then redistributed to all 22 local authorities with the idea being wealthier areas support councils with fewer, and lower value, business premises. 

The business rate holiday for the current year, until March 2022, is worth £380m which gives an idea of the value of business rates to Welsh councils. The Welsh Government is currently able to plug the gap due to emergency funding since the pandemic. 

In England councils retain half the business rates they collect and Theresa May’s government had intended for councils to keep 100 per cent of the revenue from 2020, making authorities less reliant on central government. 

Of course decisions governments in England and Wales take are issues for them respectively but should business rates be scrapped in England there would inevitably be pressure for a Welsh Government to respond, especially without any reform in Wales and the economic realities highlighted by Reeves are as true in Wales as they are in England.  

If a Labour government scraps rates in England there would be even more pressure on a Labour government in Wales to follow suit. 

Decisions over business rates are in a sense only policy details on which there will always be comparisons and seemingly contradictory examples. 

But what will have really mattered to Wales, and whichever party is in government, if and when Labour is in power in the UK is the overall economic policy - specifically the amount of public spending the Treasury will support. 

On that front the Welsh Government, and Labour supporters more generally, will have been pleased to hear Reeves state: “We cannot have a return to the failed approach of austerity. It wouldn’t deliver growth and it would be a disaster for our public services.” 

But of course it is actual fiscal policy rather than the names which are important. Under pressure from Jeremy Corbyn’s Labour Party Theresa May declared “austerity is over” at her 2018 conference speech following eight years of cuts but there was no significant increase in public spending before the pandemic forced the government’s hand. 

Just as Reeves was short on detail on how business rate revenue will be replaced, beyond a promise to tax online firms more, there was little beyond stating austerity had failed. 

So it remains unclear just how much more Labour would be willing to spend. But, in a speech which took several swipes at chancellor Rishi Sunak’s management of the public purse, Reeves was eager to make clear that Labour will be disciplined when it comes to spending. 

“That is why we would put in place fiscal rules that will bind the next Labour government to ensure we always spend wisely and keep debt under control,” said Reeves delivering a message that will make many Labour supporters eager for a government that will be more responsive to financial circumstances – and the ability of government use its financial muscle – weary. 

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The Welsh Government will have to work under the public spending framework of whichever government is in Downing Street and Labour appears committed to an adherence to hard and fast rules with a fear of debt. That is an approach to public finances often compared, favourably by the economic right, to wise household budgeting and irrelevant and an inappropriate comparison by the left. 

Where Reeves has promised spending on infrastructure, from schools and hospitals to an extra £28bn in capital funding for a “green transition”, is likely to be countered by the Conservatives who say they too are committed to large, long term investments.  

While there may be disagreements over how much should be spent, and borrowed, there may be consensus on stricter controls on day to day spending and that borrowing should be limited. 

A further difference between Reeves, and the current Downing Street administration, is likely to be the attitude to who determines where, and how, that cash is spent. 

The Conservative government, which insists its “levelling up” funding is planned in partnership with local councils, is accused by the Welsh Government, and others, of having too tight a control – and in the case of Wales, and the devolved nations, encroaching on their areas of responsibility. 

Reeves appeared mindful of this and said: “The Tories just don’t get it” claiming they "treat elected local, regional and national leaders in Britain with contempt.” 

Almost copying words from Welsh Labour’s playbook, as she praised the Welsh Government’s publicly managed track and trace programme, which has cost an estimated £102m against the £13bn privately run system in England, Reeves promised to work “hand-in-hand with trade unions and with businesses.” 

The promise of industrial strategy for overlooked sectors of the “everyday economy” like retail, hospitality and care could be linked to phasing out business rates and while they may be strictly England only policies – it would result in additional funding for Wales if tied to increased public spending. 

Such a major intervention also underlines why regulation of the UK’s internal market, which through the current Internal Market Act has proved so contentious, is necessary. 

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Labour also appears cautious on income tax increases, having strongly attacked Boris Johnson over the National Insurance increase, and in Wales the party is still reluctant to use the income tax varying powers it was granted in 2019. It ruled out changes during the last Senedd term and in May promised it won’t take more in Welsh rates of income tax “for at least as long as the economic impact of coronavirus lasts”. 

For now the Welsh Government must work under the broad economic policies of the Conservatives. The shadow chancellor’s conference speech has given an indication of the circumstances the Welsh Government will be facing if there is a change in the UK Government it so often complains about. 

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