Ed Miliband is right to focus on business rates but they need more than tinkering Under Mr Miliband's plan, a Labour government would scrap that inflation increase in 2015 and hold rates at the 2014 level until April 2017. However, this would only be on properties with a rateable value of £50,000 or less per year and it would be funded by scrapping the scheduled cut in corporation tax from 21pc to 20pc in April 2015 for businesses with profits of more than £300,000. The Labour leader wants to help small businesses at the expense of big business but his policy actually benefits small properties, rather than small businesses, because rates are based on the value of individual properties, not the business that occupies them. According to the Grimsey Review into the future of the high street, the average rateable value of retail in the UK is £27,130, well below Labour's £50,000 threshold. So, industry sources believe the freeze could benefit companies such as Boots and WH Smith, as well as Tesco and Sainsbury's convenience stores, all of whom occupy small high street shops. As a result, Mr Miliband's business rates freeze may encourage some retailers to open more stores on the high street but there are also a string of potential unintended consequences. If supermarkets and national retailers are incentivised to target smaller units, could it mean that local retailers struggle to find appropriately-sized properties? And could the rise in corporation tax lead to retailers with larger stores halting investment or closing existing units? If there is one thing that the existing, flawed business rates system has proven, it is that it has the power to shape the evolution of the high street. For example, the sharp increase in charity shops is linked to the fact that charities enjoy discounted business rates, meaning they can afford to pay more rent and occupy empty shops. The Labour freeze could create another damaging distinction on the high street between large and small shops. A far better idea would be to give local authorities the power to offer relief where they see fit - as the Scottish Government is proposing - or cut rates for businesses that occupy empty shops or new developments, as the CBI has suggested. But the other issue with Labour's proposal is that it is just not substantial enough. This tinkering would be an excuse not to overhaul a failing system. According to Labour's estimate, the freeze would save businesses just £450. Bearing in mind that the average retailer pays £12,750 a year at least on a store, this is fairly insignificant. By basing the freeze on valuations, Labour is also ignoring one of the biggest problems with the tax - that the valuation of many shops in the UK is too high. The Coalition's controversial decision to postpone a revaluation of property scheduled for this year means that shops on Britain's battered high streets are paying business rates based on peak property values of 2008. If Mr Miliband were to demand the Government reinstate the revaluation, this would be a much fairer way of redistributing the tax burden between businesses. This is because a revaluation would broadly mean that retailers on Bond Street pay more, and retailers in Morecambe, Lancashire, which has one of the highest vacancy rates in the country, would pay less. Labour already knows what it should do to reform business rates. In 2007 it asked Sir Michael Lyons, who is now working again for the party on its housing policy, to conduct a review of business rates. It would be wise to remember his words: Sir Michael advocated conducting more frequent property valuations and fixing the multiplier at a set percentage. "More revenue would be raised during periods of growth and less during periods of downturn," Sir Michael said. This system should have economic benefits as it would make taxation better linked to the market situation, helping to ease demand during growth periods and support it during downturns. Although it may have appeared an attack on big business, Mr Miliband was right to draw a connection between corporation tax and business rates in his speech. According to the OBR's forecasts, increases in business rates are helping to subsidise the cut in corporation tax. Business rates income is forecast to rise from £24.9bn in the financial year to April 2012 to £29.6bn by April 2016, when it will overtake council tax and fuel duty to become the Treasury's fifth biggest source of income behind income tax, national insurance, VAT and corporation tax. However, during the same period corporation tax will fall from £43.1m to £36.6bn. The Government claims it is making the UK a more attractive place to do business by cutting corporation tax but business rates are a tax on companies, too. For example, Home Retail Group, the owner of Argos, paid £150m in business rates last year, compared with £25m in corporation tax. Many major UK retailers, I suggest, would grudgingly accept a cut in corporation tax being called off if it meant that business rates were overhauled. After all, at least corporation tax is based on profit. Business rates have no relation to the performance of a company and is the only major tax whose total income is fixed at the same level, whatever the economic conditions. So, credit to Mr Miliband for putting business rates back on the political agenda. The Coalition would be wise to take note but it must look to overhaul the system rather than tinker around the edges.