The author of the controversial report on business rates and high streets in Wales has failed to grasp the fact that charities qualify for rates relief because they are charities and provide public benefit, CFG has declared.
In its submission to the consultation on the report and its recommendations, the umbrella body said: “CFG believes that a major oversight of the report is a lack of acknowledgement or apparent recognition of why charities are granted rates relief.
“Generally it is accepted that reliefs from taxation exist in recognition of a charity’s role in delivering public benefit.
“The report implies that the relative success of charity shops justifies a reduction in business rate relief. Tax reliefs are not granted on the basis that they correct commercial underperformance – therefore the position the report takes is fundamentally flawed.”
The report, written by Professor Brian Morgan for the Welsh government, alleged that charity shops create “market distortion” on Welsh high streets and enjoy an unfair advantage over other types of businesses because of the rates relief they claim.
Prof Morgan questioned whether charities should receive mandatory business rate relief at all, and recommended that the existing 80 per cent charitable relief should be cut to 50 per cent for all charity shops in 2022.
The report also proposed cuts to rate relief for charity shops from next year, based on the rateable value of the units they occupy.
'Misunderstanding of the rationale for relief'
CFG objected strongly to these recommendations, saying that if implemented they would reduce charity income and lead to closures and ultimately reduced support for beneficiaries.
It points out that at £3.4m a year, charity rate relief is a relatively small amount when compared with small business rate relief.
“We are unconvinced by the argument that charity shops create distortion of competition. As is acknowledged in the document, a charity shop’s biggest source of competition is other charity shops. The suggestion that rates relief provides an unfair advantage simply demonstrates a misunderstanding of the rationale for tax reliefs.”
CFG also rejects the suggestion that the commercial sophistication of larger charity shops undermines the need for rate relief. “Professionalism is not mutually exclusive with charitable activity and does not undermine a charity’s focus on social aims,” it contended.
“Trading provides a valuable source of sustainable income for charities and the document acknowledges that charity retail is ‘a success story within UK retailing’.
“CFG believes that this success should be celebrated and supported, not used as justification to reduce reliefs.”
'Worrying direction of travel'
Finally, it says that the ideas raised in the report represent a “worrying direction of travel”. If rate reliefs are scaled back or withdraw on the basis that they are unfair to other retailers, this could pave the way to the same “incorrect” logic being applied to other reliefs.
