July 15 2013.

The business rates system needs a radical overhaul as almost one in ten respondents to a Federation of Small Businesses (FSB) survey say they are paying more in rates than rent.

The survey which polled 2,425 FSB members found that a fifth of respondents pay full business rates, with three in ten firms receiving some form of rates relief, such as small business or rural rate relief.

However, the FSB is concerned that seven per cent of respondents paying business rates say they pay more in rates than in rent. A further six per cent say their rates and rent costs are about the same.

The FSB believes the business rates system is cumbersome and overly complex, and would like to see the government take a formal review to make it simpler and fairer, as it is doing with other taxes. While business rates generate a huge sum for Treasury, it is a tax not related to economic activity and this needs to be addressed.

With another inflationary rise due to be calculated in September the FSB wants to see the government change the inflation index used to calculate annual increases from the RPI to the CPI to bring it into line with other government policies. The FSB believes that changing the indexation in this way, as recommended by Mary Portas, could help small firms on the high street.

John Allan, National Chairman, Federation of Small Businesses, said: "The current rating system is a blunt tool for maintaining the government's income even when everyone else's is shrinking. It takes no account of ability to pay, or changes to economic conditions. It is based on rental values but only adjusts its valuation assumptions every five years. Its treatment of empty property is tantamount to a tax on no income, and it continues to use RPI for annual tax increases because it is normally above the government's official measure of inflation, CPI. The FSB wants to see a level playing field for all businesses.

"There is no doubt small businesses across the country are struggling for survival. I recently heard of a restaurateur in Southport facing closure because of the unacceptable costs. Indeed, business rates are one of the highest costs for most business after wages and rent, and for seven per cent of small business, business rates were actually higher than rent.

"Businesses will continue to be lost as a result of this outdated and unfair system. The Autumn Statement will need a wide range of measures to target relief at businesses most in danger, and it will need to talk to business about a major overhaul of the system. It doesn't work anymore; it is crushing small businesses and killing the high street. That surely can't be right."