Business rates should be radically reformed or scrapped to protect the UK’s struggling shops, an inquiry led by a Midland MP has warned.

They could be replaced by a fairer system such as a sales tax, said the Commons Business, Innovation and Skills Committee.

MPs warned that the current system of business rates is not fit for purpose and needs to be fundamentally reformed.

They also called for a wholesale review that goes beyond the administration of business rates to examine whether retail taxes should be based on sales rather than the rateable value of a property. Committee chair Adrian Bailey (Lab), MP for West Bromwich West in the Black Country, said: “British retail is a global success story. Employing around three million people, it is the largest private sector employer in the UK.

“But its traditional home – the High Street – is struggling under a system of business rates that comprises one of the highest forms of local property tax in the European Union.” The committee, which also includes Midland MPs Robin Walker (Con Worcester) and Nadhim Zahawi MP (Con Stratford-upon-Avon), spoke to a range of witnesses including trade union leaders, government ministers, trade associations and representatives of major retailers such as Boots and Marks & Spencer, as it conducted an inquiry into the retail sector. MPs called for a six months business rates amnesty for businesses occupying empty properties. This would go further than the 50 per cent reduction already announced by the Chancellor last year.

The committee also recommended that the Government review whether business rates are more appropriately linked to CPI or RPI – the two different rates of inflation – and called for annual increases to be linked to a 12 month average of either RPI or CPI, with a cap at two per cent. This would replace the current link to a monthly snapshot of RPI.

Mr Bailey said: “Amongst the many challenges they face, business rates are the single biggest threat to the survival of retail businesses on the high street.

“Since the system was created the retail environment has changed beyond all recognition. A system of business taxation based on physical property is simply no longer appropriate in an increasingly online retail world. The Government’s consultation on the administration of business rates at least acknowledges that change is needed.

“But this is a time for wholesale review and fundamental reform, not for tinkering around the edges. Business rates are not fit for purpose.

“We are not advocating a return to a bygone age. But if high streets are to become thriving community hubs and start ups are to invigorate our town centres, the significant barrier to innovation currently posed by business rates must be addressed. The Government’s retail strategies are full of warm words that fail to address the most debilitating levy on existing businesses and the most crucial deterrent to new businesses appearing on the high street – business rates.

“Fewer strategies are required, simple, decisive action is needed.”

Toby Perkins MP, Labour’s Shadow Minister for Small Business, said: “The committee is right to emphasise the importance of the retail sector and to focus on the spiralling cost of business rates under the Tory-led government.”

Labour’s “retail champion” Bill Grimsey, who previously ran chains Wickes and Iceland, is meeting retailers across Britain to discuss how the next Labour government can support the sector, he said.